Oil prices rallied more than $3 a barrel on Wednesday, recovering all the losses triggered by last week’s decision by rich consuming nations to release strategic oil stocks.
Brent crude, the global benchmark, jumped to a peak of $112.48 a barrel, the highest since last Thursday, when the International Energy Agency announced its members would sell 60m barrels of oil, the third co-ordinated sale from the reserves in the organisation’s history.
Amid heavy selling in the days that followed the IEA’s move, Brent traded as low as $102.28. Since that level was reached on Monday, however, prices have rallied 10 per cent, or just over $10 a barrel. A reappraisal of the impact of the IEA’s intervention triggered the reversal. Traders have shifted their focus to an expected oil supply squeeze in the next few years instead of the prospect of an additional 2m barrels a day of oil for a month.
“The reality remains that the current market is still grappling with a structural change that has effectively resulted in the gain of some five years of oil demand in one year,” said Amrita Sen, oil analyst at Barclays Capital.
That’s Jack Farchy in the FT, today. I did wonder what the IEA thought was going to happen if the reason for high oil prices is structural rather than just a short term shock…
The IEA’s emergency stocks mechanism was built to respond to short-term, sudden-onset shocks. But if (as the FT’s Javier Blas argues), Libya’s oil production is “not going to recover any time soon”, and emerging economy demand for oil is proving notably robust, then that’s not a shock at all. It’s structural. And if it’s structural, then how does releasing stocks solve anything?
Global Dashboard post, 24 June