With oil reversing much of the overnight losses as we neared the start of US cash open trading, futures slumped and it felt like we were back to square one.
That's when the jawboning out of the G7 members - many of whom are already at their breaking point in terms of soaring input costs - decided to double down on the jawboning rhetoric from yesterday - and hinted strongly that an SPR release could be imminent.
The narrative peaked just around 10:20am ET, when the head of the IEA, Fatih Birol, said that after the IEA hosted a G7 Energy Ministers Meeting, chaired by Minister Roland Lescure of France, on the current oil & gas market situation, tonight there would be an "extraordinary meeting of IEA Member governments later today to assess market conditions."
Birol also attached the following peak jawboning statement:
In oil markets, conditions have deteriorated in recent days. 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. We discussed all the available options, including making IEA emergency oil stocks available to the market. IEA 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.
Given conditions in oil markets, I have convened an extraordinary meeting of IEA Member governments, which will take place later today to assess the current security of supply and market conditions to inform a subsequent decision on whether to make emergency stocks of IEA countries available to the market.
As well as IEA Members, I am also in close contact about the situation with energy ministers from key energy producers and consumers around the world.
And in a mirror image of a similar verbal intervention from yesterday (see "G-7 Leaders Reject SPR Release Plan, But 'Stand Ready' After Initial Jawbone Efforts Fade"), oil immediately tumbled erasing all gains, and sliding to overnight lows, on expectations that this time the IEA/G7's jawboning will lead to something more than just promises.
And as oil falls, stocks rise...
Which is all as one would expect.
However, as Bloomberg's Ye Xie notes, despite the slump of crude oil prices and the calming of Brent crude spreads this morning, WTI option traders still see risks skewed toward higher prices. Investors are paying the highest premium in years for call options for WTI futures over puts...
That shows investors remain concerned about a prolonged oil and gas disruption as long as the Strait of Hormuz remains effectively shut. As Jordan Rochester at Mizuho noted, the amount of production shut down in the Middle East is set to double over the next week or so, taking daily supply of about 8 million barrels out of the market. That isn’t particularly encouraging news for investors - even as the jawboning from G-7 energy ministers continues.
The bigger problem is what happens if - like yesterday - a few European countries who SPRs are already at dangerously low levels, kill the idea. After all, all an SPR release would do is buy a few weeks of artificially depressed oil prices while further draining global emergency stocks. So while oil is already frontrunning the drop, expect oil to surge should the IEA/G7 disappoint again and fail to move from mere jawboning to action.
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