G7 delays decision on release of emergency oil reserves

• Move now expected at Tuesday meeting
• 300 million barrels may be released
• IEA’s Birol: ‘Significant risks for market’

The G7 has stopped short of committing to a coordinated release of emergency oil reserves, with a decision now expected at a meeting of energy ministers on Tuesday.

Earlier reports had suggested leading economies were considering releasing up to 300 million barrels from stockpiles coordinated by the International Energy Agency (IEA) to offset supply disruptions linked to the conflict in the Gulf.

Oil prices surged to four-year highs on Monday, with Brent crude rising close to $120 a barrel before retreating to under $100 at 16:45 GMT. Iranian attacks on vessels and warnings to close the Strait of Hormuz triggered a scramble among buyers to secure supplies.

Speaking after the meeting in New York, Fatih Birol, executive director of the IEA, said global oil market conditions had “deteriorated in recent days” as the conflict in the Middle East disrupted supply and transit routes.

“In addition to the challenges of transit through the Strait of Hormuz, a substantial amount of oil production has been curtailed. This is creating significant and growing risks for the market,” the IEA chief said.

He added that G7 finance ministers had “discussed all the available options, including making IEA emergency oil stocks available to the market”.

A decision to release emergency reserves is now expected to come at a separate meeting of G7 energy ministers on Tuesday, the FT reported. 

The group of leading economies said they “stand ready to take necessary measures” to tackle the surge in oil prices.

However, French finance minister Roland Lescure said the group was “not there yet” on a decision to tap reserves held by the IEA’s 32 member countries.

More news on the Iran conflict

• Iran war could reduce Saudi budget deficit
• How Aramco can keep oil flowing during Iran conflict
• Frank Kane: The Hormuz bottleneck – something’s got to give

Birol said IEA member countries held more than 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks stored under government obligation.

The IEA is in close contact with energy ministers from countries including Saudi Arabia, India, Azerbaijan and Singapore as governments assess the implications for global energy markets.

Michael Haigh, head of fixed income, currencies and commodities research at Société Générale, said oil prices had “overreacted” because of illiquidity in the market.

The oil price remains well above Saudi Arabia’s estimated fiscal breakeven price of about $87, which could boost government revenues if exports are maintained.

Although a continued rise could ease pressure on the kingdom’s budget deficit, analysts have warned the overall impact remains uncertain because export volumes are being disrupted. 

Saudi Aramco could keep oil exports flowing for up to 10 weeks even if the Strait of Hormuz is closed, by redirecting crude shipments to Red Sea terminals. 

The Saudi East-West pipeline from Abqaiq to Yanbu could allow much of the oil usually shipped through the Gulf to bypass the narrow shipping channel, analysts have said.