Oil hovers around $90 as traders shrug off prospect of historic reserve release

Oil prices were higher on Wednesday, despite a report that there would be a historic release of emergency reserves from the International Energy Agency.

Shortly before 7 a.m. ET, global benchmark Brent crude futures were 2% higher to $89.49 a barrel, after earlier rising above the $92 mark. U.S. crude oil gained 2.4% to trade at $85.44 a barrel, also paring earlier gains.

On Tuesday, G7 energy ministers convened in Paris to discuss the U.S.-Iran war and its impact on global oil and gas markets. The conflict has disrupted energy production in the Middle East and led to a blockade in the Strait of Hormuz, a critical shipping route.

On Wednesday morning, Reuters reported that the IEA would recommend the release of strategic oil stocks that would exceed 100 million barrels per day in the first month. In a statement sent to Bloomberg, G7 energy ministers said they backed the “implementation of proactive measures to address the situation, including the use of strategic reserves.”

It came after The Wall Street Journal reported Tuesday evening that the IEA had proposed the largest ever release of oil from its strategic reserves, exceeding the 182 million barrels that its member states put on the market following Russia’s full-scale invasion of Ukraine in 2022. Countries are set to decide on Wednesday whether to release emergency oil stocks.

The IEA did not immediately respond to a request for comment from CNBC.

In a Tuesday statement, IEA Executive Director Fatih Birol said member countries currently hold over 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks held under government obligation.

“In oil markets, conditions have deteriorated in recent days,” Birol said, pointing to transit challenges as well as a substantial curtailing of oil production.

“This is creating significant and growing risks for the market,” he added. “We discussed all the available options, including making IEA emergency oil stocks available to the market.”

On Tuesday, oil prices fell drastically after a post on U.S. Secretary of Energy Chris Wright’s social media account wrongly stated that the U.S. Navy had escorted a tanker through the Strait of Hormuz.

White House Press Secretary Karoline Leavitt later told reporters the U.S. Navy had “not escorted a tanker or a vessel at this time.”

Overnight, it was reported that American forces had sunk several Iranian ships, including 16 minelayers, near the Strait of Hormuz.

Wednesday morning also saw other signs of the conflict escalating, as the U.K.’s Maritime Trade Operations — a maritime security authority — said three cargo ships off Iran’s coast had been struck by projectiles. One of the vessels was struck in the Strait of Hormuz, the UKMTO said.

Meanwhile, authorities in Dubai said two drones fell in the vicinity of Dubai International Airport on Wednesday, with four people being injured as a result. The airspace around the city was briefly closed.

“We really think that the critical factor remains the war’s duration, so these releases of the IEA’s stocks really buys us a few days, but in reality, really it all depends on the opening of the Strait of Hormuz,” Sasha Foss, energy market analyst at Marex, told CNBC’s “Europe Early Europe” on Wednesday.

“This conflict needs to end by the end of the week. Otherwise, we’ll see oil prices spike back up over $100,” Foss said.

Other market watchers have warned that a drawn-out conflict between the U.S. and Iran could push oil back above the $100 threshold.

“If tensions de-escalate in the coming weeks, oil prices could retreat … but even in that scenario, it is unlikely prices will return to the $60–$70 range seen earlier this year,” Paul Gooden, head of global natural resources at Ninety One, said in a Tuesday note.

“If the disruption lasts longer, the consequences become more significant. Oil prices could spike further – potentially above $120 or even higher – until higher prices begin to curb demand.”