“Such an adverse increase in oil prices will translate into an extra $110 billion monthly oil costs for IEA member states at a time when their economies still remain fragile. Such a price spike would likely precipitate another global recession and even greater economic losses as a result. So releasing $7 billion worth of oil from strategic reserves each month while supplies remain constrained would appear very worthwhile,” he said.
However, he added, such strategic oil releases only work if the market believes the interruption will be temporary, that supplies will quickly return to normal, and that stockpiles can be rebuilt later.
Crude oil prices are already indicating that market participants remain nervous about supply shortages and that the IEA’s intervention may not be working. Brent crude prices may have fallen sharply on the initial news of the IEA’s plans but since then have rebounded and are near their highs of around $120 per barrel during the earlier part of this year when the Libyan crisis was unfolding and before the IEA or other oil suppliers had time to react. This may be a sign that markets are as tight now as they were before the IEA intervened.
“Only action by oil suppliers can provide a long term solution to the current oil market squeeze,” he said.
