Oil prices nudge higher as IEA reserves tapped; Wall St eases

Brent crude oil prices nudged higher after the International Energy Agency approved the release of a record 400 million barrels of oil from strategic reserves as nations seek to mitigate the disruptions to supply caused by the Iran conflict, as attacks stepped up in the Strait of Hormuz.

Stocks on Wall Street declined with the likes of paint manufacturer Sherwin-Williams and consumer goods firm Procter & Gamble leading the Dow Jones Industrial Average lower, while across the Atlantic, German ammunition maker Rheinmetall slumped when it missed earnings expectations.

New Zealand’s group of ministers coordinating the government’s response to the Middle East conflict met for the first time last night, with associate energy minister Shane Jones briefing his colleagues on the country’s commitment to release emergency stocks to the global pool.

Meanwhile, carriers such as United Airlines and Deutsche Lufthansa set a soft lead for Air New Zealand, which is cutting 1,100 flights on busy routes that fly off-peak hours as it seeks to mitigate the impact of surging jet fuel prices.

Just in case

IEA members are releasing 400 million barrels of oil from its strategic reserves to help stabilise surging energy prices as the conflict in Iran intensifies, injecting more than twice the release in 2022 when member nations responded to Russia’s invasion of Ukraine.

The reaction was muted after the retreat from prices north of US$110 a barrel earlier this week, with Brent crude oil futures up 4.8% at US$91.97 a barrel at 7am in Auckland.

Three commercial ships were struck near the Strait of Hormuz as Iran ramped up efforts to stop traffic through the channel, while US forces said they’d destroyed 16 minelaying vessels. Polymarket prediction markets are pricing in a 52% chance of a ceasefire by the end of April.

“Analysts are sceptical that the release will be impactful enough to make a difference,” Bank of New Zealand senior markets economist Jason Wong said in a note. “The longer the Strait of Hormuz remains effectively closed, through which 20 million barrels per day of petroleum products normally travels, the deeper the pending crisis.”

New Zealand’s contribution to the IEA release amounts to six days of the country’s 90-day supply, or roughly 20% of oil tickets to overseas emergency reserves.

Resources minister Jones briefed the ministerial group overseeing the government’s response to the conflict, saying they haven’t yet decided on how to release the stocks, and that local fuel companies are reporting no significant supply chain issues or fuel stock levels.

Stormy weather

Carriers were mixed in overnight trading, with United and Lufthansa among those declining in the session. Air NZ is hovering above an all-time low, and will cancel about 5% of its flights, affecting 44,000 passengers between now and the end of April. Chief executive Nikhil Ravishankar told Radio New Zealand’s Morning Report programme the airline isn’t seeking government intervention at this stage.

Investor sentiment soured overnight, with the volatility index, known as Wall Street’s fear gauge, climbing 1.8% to 25.37, with US stock markets broadly weaker. The Dow was down 0.8% in late trading, led lower by Sherwin-Williams, P&G and Visa, while energy giants Chevron and Exxon Mobil advanced.

Across the Atlantic, stock markets were also weaker, with Germany’s DAX sliding 1.3% after ammunition maker Rheinmetall missed earnings expectations, slumping 8%. The UK’s FTSE 100 fell 0.6% while France’s CAC 40 dipped 0.2%.

That soft tone is set to carry through to the antipodes, with Australian futures pointing to a 0.9% decline for the S&P/ASX 200 index when trading opens across the Tasman.

The kiwi dollar fell to 59.12 US cents from 59.43 cents yesterday, and traded at 82.74 Australian cents from 82.84 cents. The local currency tumbled against its trans-Tasman counterpart as economists predict the Reserve Bank of Australia will hike the target cash rate at next week’s policy review.

Bond traders are fully-pricing in a rate hike by New Zealand’s Reserve Bank in October, and with 23 basis points priced in for the September meeting.

Statistics New Zealand will release producer prices, manufacturing and wholesale trade figures today, while NZX-listed companies shedding rights to upcoming dividend payments include Sky Network Television and Summerset Group Holdings.

Reporting by Paul McBeth. Image from Timothy Newman on Unsplash.