However, the influence may be limited. The amount of oil released is only three to four days of global demand or two weeks of normal shipments through the Strait of Hormuz. IEA member countries hold strategic reserves that are equivalent to at least 90 days of domestic oil consumption. Collectively they contain more than 1.2 Billion barrels in government stockpiles and another 600 million barrels in industry reserves.
Structural Supply Problems Keep Prices Elevated
The release of emergency reserves does not imply sudden release of a wave of new oil to the market. Oil is stored in a lot of places including terminals and refineries operated by oil companies. When governments allow a release, producers simply make more oil available to be bought by refineries. Therefore, the physical flow of oil into the market increases over time.
On the other hand, Refining capacity is tight in many regions which limits the speed at which crude oil can be processed into usable fuels. At the same time, the worldwide gas market is also under pressure. Liquefied natural gas supplies have been down by about 20% since the conflict started. This causes benchmark UK LNG prices to rise by about 70%.
Oil Price Volatility After War Shock Signals Strong Bullish Structure
Triangle Breakout and War-Driven Price Surge
The crude oil prices show strong volatility after the U.S.–Iran war started. The WTI crude oil price spiked to hit $119 and then corrected lower to mark a low at $76.73. The effects of war are serious and this would likely trigger positive behavior in oil despite the government’s efforts to control prices.
From technical perspective, the U.S.–Iran war started when the price was trading around $67, which was the critical breakout level from the triangle pattern. When the war started, the price opened with a gap higher and continued to surge to mark a high of $119. The breakout from this triangle has a minimum target of $120, as discussed earlier, which is defined by the March and June 2022 highs.
