The oil market was not immediately impressed. US crude spiked about 10% Tuesday morning to an intraday high of $105.14 a barrel. That’s the highest level since 2014. Brent crude, the world benchmark, soared about 8% to $105.40 a barrel.
“The bottom line is this is not enough to cool off the market. It’s a bit of a band-aid solution,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
“You need to super-size the numbers,” said Robert Yawger, vice president of energy futures at Mizuho Securities.
The invasion of Ukraine has driven concerns about a supply disruption from Russia, the world’s No. 2 oil producer. Brent oil prices closed above $100 a barrel on Monday for the first time since 2014.
High oil prices have lifted prices at the gas pump to seven-year highs. The national average for regular gasoline rose to $3.62 on Tuesday, up about 9 cents in a week and 24 cents in a month, according to AAA. At some point, energy prices could get so expensive that it erodes demand from consumers and slows the broader economy.
US officials have spent the last several weeks on calls and in meetings with counterpart key energy supplying countries in an effort to secure commitments to back-fill any market disruptions.
The effort included an in-person visit to Saudi Arabia
from two senior administration officials to discuss the need to address the effect on oil markets. The US informed Saudi Arabia ahead of the oil reserve announcement.
“We are actively working with countries around the world to evaluate a collective release from the Strategic Petroleum Reserves of major energy-consuming countries. And the United States will release additional barrels of oil as conditions warrant,” he said.
Tapping the reserve — the stockpile of 600 million barrels of crude oil stored in underground salt caverns in Louisiana and Texas — generally has only a limited effect on gas prices
because of how much oil can be released at a time, but would act as a political sign that Biden is confronting the problem.
Chevron CEO Mike Wirth expressed support on Tuesday for governments to release emergency stockpiles of oil to offset supply fears triggered by Russia’s invasion of Ukraine.
“I do think a coordinated response by multiple countries could help in the near-term,” Wirth said in response to a question from CNN during a briefing with reporters. “Certainly, we’ve seen markets on edge with concern about supply and supply reliability.”
Wirth expressed confidence that there will not be a major supply disruption.
“I’ve seen nothing to indicate that either Russia’s intentions or the intentions of governments involved in sanctions would be to restrict oil supply,” Wirth said. “In fact, quite the opposite. It would appear to me that people have been very careful to signal their intention is to try to maintain energy supply to a world that needs it.”
But it’s not a long-term solution. There is a finite amount of oil in emergency reserves. In fact, the SPR holds the least amount of oil since September 2002, according to government statistics.
Matt Smith, lead Americas oil analyst at Kpler, said emergency releases are arguably bullish from a market sentiment standpoint.
“Every time the US announces a release from the SPR,” Smith said, “it’s one less bullet that it has to be able to use later on.”