The Trump administration will loan 53.3 million barrels of crude oil from the U.S. Strategic Petroleum Reserve, it said Monday, as Brent crude prices surged past $103 per barrel on renewed fears of a prolonged U.S.-Israeli war with Iran.
"You are going to end up in a scenario where poorer countries are going to have a humanitarian crisis, Europe is going to have an economic crisis and the US, a political one," Felipe Elink Schuurman, chief executive officer at consultancy Sparta Commodities, said on CNBC Monday, comparing the current supply shock to the demand destruction seen during the 2020 pandemic.
International benchmark Brent crude futures for July delivery gained 2.5 percent to $103.80 per barrel, while U.S. West Texas Intermediate crude for June rose 2 percent to $97.40. Both benchmarks have climbed about 40 percent since the war began on Feb. 28, escalating after President Donald Trump on Sunday called a counter-offer from Iran "totally unacceptable" and Israeli Prime Minister Benjamin Netanyahu warned the conflict was "not over."
The loan represents a second drawdown from the 172 million barrels the U.S. has pledged as part of a 400-million-barrel coordinated release by the International Energy Agency. However, the intervention comes as global inventories are draining at a record pace. According to estimates from Morgan Stanley, worldwide oil inventories fell by roughly 4.8 million barrels per day between March 1 and April 25. Natasha Kaneva, head of global commodities research at JPMorgan Chase, warned that inventories in developed nations could reach "operational stress levels" by June.
The war has sent shockwaves far beyond oil, crippling nearly 30 percent of the world's supply of urea and sending sulfuric acid prices in China up 1,150 percent, disrupting agriculture and the production of semiconductors and batteries. The United Nations has warned of potential crop losses and food inflation comparable to the COVID-19 pandemic if the Strait of Hormuz, a critical shipping artery, is not reopened before June.
Analysts at Citigroup said that while their base case assumes the strait will reopen by the end of May, the risks of a delay or only a partial reopening are high. The administration's move aims to put a ceiling on prices, but with U.S. crude inventories, including the SPR, falling for four straight weeks, the market is testing the limits of government intervention against the powerful reality of a major geopolitical conflict.
This article is for informational purposes only and does not constitute investment advice.
