A modest day for markets, but oil prices climb even with impending release of reserves

Most U.S. stocks fell on Wednesday as the price of oil started rising again, but markets remained calm for a second day of modest moves after a wild start to the week amid the war in the Middle East.

The S&P 500 finished the trading day having fallen 0.1 per cent, while the Dow Jones Industrial Average slipped 0.6 per cent and the Nasdaq composite was 0.1 per cent higher. Oracle limited Wall Street’s losses after it jumped following a strong profit report.

Since the start of the war on Feb. 28, oil prices have been the trigger causing big moves up and down for financial markets worldwide, sometimes by the hour.

Oil prices briefly spiked to their highest levels since 2022 this week because of the possibility that production in the Middle East could be blocked for a long time, which in turn raised worries about a surge of debilitating inflation for the global economy.

Those prices crept back up on Wednesday, even though the International Energy Agency (IEA) said that its members will release a record amount of oil, 400 million barrels, from stockpiles they’ve set aside for emergencies.

Such moves push downward on oil prices in the near term, but it’s likely that only a full resumption of the flow of oil and natural gas from the Persian Gulf area will fully ease the market. That has investors worldwide anxiously awaiting the end of the war.

“I think it will have a calming effect and it will push prices down simply because, you know, sentiment will be eased, and essentially we will have more oil available on the market,” Naveen Das, an energy analyst at Kpler in London, told CBC News. “However, it won’t be an effective Band-Aid, really, to replace the volumes that we’ve lost so far.”

That’s because the volume of oil lost with each passing day in the Strait of Hormuz will outpace the amount to be released from the reserves over time, Das said — about 400 million barrels’ worth from the IEA members.

The price for a barrel of Brent crude, the international standard, rose 4.8 per cent to settle at $91.98 US. A barrel of benchmark U.S. crude gained 4.6 per cent to settle at $87.25 US.

Germany, Japan to release some reserves

Worries are centred on the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails on a typical day — and U.S. President Donald Trump has remained clear about his desire to keep the strait open.

The war has halted most of that traffic, which means storage tanks for crude in the region are filling up because the oil has nowhere else to go. That in turn is pushing oil producers to say they’re cutting their output.

Germany, Austria and Japan said earlier Wednesday that they would release parts of their oil reserves in response to the IEA’s request for members to release reserves.

Katherina Reiche, Germany’s minister for economic affairs and energy, said that after her government triggers the release, it would take a couple of days until the “delivery of the first quantities.”

The U.S. said it took out more than a dozen mine-laying Iranian vessels on Tuesday, as Tehran vowed to block the region’s oil exports, saying it would not allow “even a single litre” to be shipped to its enemies.

“With Iran continuing to threaten vessels passing through the Strait of Hormuz, the focus will be on how the U.S. and other major economies will ensure the flowing of crude oil via this narrow passage and alternative routes to help stabilize prices,” Fawad Razaqzada, an analyst with Forex.com, wrote in a market report.

A major release of emergency oil reserves will only buy time, he said. “The real issue is the disruption to supply flows, and the longer that continues unresolved, the higher oil prices are likely to go if the Iran war continues.”

A worst-case scenario

Stock markets have a history of bouncing back relatively quickly from military conflicts, as long as oil prices don’t stay too high for too long. Uncertainty about whether that may happen this time around has led to stunning swings up and down for markets worldwide, often hour to hour.

If oil prices do stay high for a long period, household budgets already stretched by high inflation could snap under the pressure. Companies would see their own bills jump for fuel and to stock items on their store shelves. It all raises the possibility of a worst-case scenario for the global economy — “stagflation,” where growth stagnates and inflation remains high.

A report released Wednesday showed that U.S. consumers paid prices for groceries, gasoline and other costs of living that were 2.4 per cent higher in February than a year earlier.

To be sure, that inflation rate was the same as the prior month’s and better than the 2.5 per cent that economists expected, but it remains above the two per cent target the U.S. Federal Reserve has set for the economy. It also doesn’t include the spike in gasoline prices that’s happened this month due to the war.

Because of the spike in oil prices, traders have pushed back forecasts for when the Fed could resume its cuts to interest rates. Trump has been angrily calling for such cuts, which would give the economy and job market a boost but also potentially worsen inflation.