Status: 08.04.2022 11:24 a.m.
To mitigate the effects of the Ukraine war on the price of oil, the International Energy Agency releases more oil reserves. It is the biggest launch in history. Until when will that be able to lower prices?
By Thomas Spinnler, tagesschau.de
For consumers, high oil prices have become a massive cost factor, which is beginning to significantly limit the scope for many other purchases and significantly increase overall costs. Gasoline and fuel prices have been at a very high level for weeks, although they have recently fallen below record highs in March.
The International Energy Agency (IEA) has now announced that it will release another 120 million barrels over a six-month period on top of the 62.7 million barrels (159 litres) of crude oil reserves already released.
The largest launch in IEA history
This is intended to boost crude oil prices, which have risen sharply as a result of the Ukraine war, to a level that is more bearable for consumers and more beneficial to the economy. It is the largest launch in IEA history. Overall, the IEA has emergency reserves of 1.5 billion barrels.
According to calculations by Commerzbank commodity experts, the total reserves released so far by the IEA and the US should be enough to increase daily oil supply by one million barrels for ten months. “The Russian oil supply loss of three million barrels per day forecast by the IEA could be offset over 100 days,” writes Carsten Fritsch, oil market watcher at Commerzbank.
Given these magnitudes, according to Fritsch, the fear that previously existed of a shortage of supply can no longer be justified, which is also reflected in the evolution of prices.
Falling prices in the oil market
In fact, the momentum in the oil market appears to be slowing at the moment. The price of a barrel (159 liters) of the WTI variety also falls today and is still around 97 dollars, more than 20 percent less than a month ago. The price of Brent is also falling and could soon fall back below $100, also more than 20 percent.
And there are other factors that currently point to some relief in oil prices. Economists fear the Chinese economy will lose momentum in certain regions due to harsh coronavirus lockdowns. That would reduce the demand for raw materials and therefore also ease the price of oil.
Experts believe that a tightening of US interest rate policy by the US Federal Reserve (Fed) will have a similar effect. US central bankers are currently discussing how to fight inflation by raising interest rates faster and harder. This, in turn, could have a negative impact on the economy and also reduce the demand for oil.
short term relaxation
But will the positive effect of the reserve release last? “These measures may ease the supply situation in the short term, but ultimately shift the problem of shortages into the future, because reserves need to be replenished,” Deka-Bank experts write in their current economic outlook.
In addition, major producing countries are currently implementing price increases: Saudi Arabia’s state oil company, Saudi Aramco, will increase prices for Asian customers by $4.40 starting in May compared to March. The oil company is a lucrative machine: last year it more than doubled its net profit to $110 billion. That’s slightly more than the market value of Volkswagen or Siemens, as an annual profit.
Starting in May, Qatar will also increase prices for the types of oil produced there, as the state-owned company Qatar Energy has just announced.
Billions of additional earnings?
In any case, it is at least uncertain to what extent and how quickly the drop in oil prices will be passed on to consumers: Economy Minister Robert Habeck wants to give the Federal Cartel Office more rights to control high fuel prices so that the drop in prices also reaches consumers. .
In a recent study, the environmental protection organization Greenpeace accuses the oil industry of making billions from high gasoline and diesel prices. Since the beginning of the war in Ukraine, they have made at least three billion euros in additional profits. The industry responds to this accusation by saying that companies also have higher expenses, for example due to higher energy costs in the refining process and additional transport.