IEA proposes the largest-ever release of crude oil reserves, global stock markets rebound, Japan and South Korea stocks close higher, oil prices stay below $90.

International Energy Agency (IEA) plans to launch the largest-ever release of strategic oil reserves, injecting a strong boost into the recently volatile global financial markets.

According to Wall Street Journal, the IEA proposed releasing the largest-ever amount of strategic oil reserves to counteract energy price shocks caused by conflicts in the Middle East. Boosted by this news, the MSCI Asia-Pacific Index rose 1.2%, with the technology sector gaining 3.2%, and Oracle’s stock surged 8% after hours. Meanwhile, the US dollar continued its fourth consecutive day of decline, US Treasury prices rose, and the 10-year yield slightly fell by one basis point to 4.14%. Gold continued its upward trend, trading near $5,200 per ounce.

However, market gains later narrowed. The Financial Times reported that JPMorgan has reduced some loans and tightened lending to private credit institutions, raising concerns about credit quality. European stock index futures edged lower, while US stock index futures pared gains to 0.2%.

Trump warned Iran not to set mines in the Strait of Hormuz, and earlier, US Energy Secretary Chris Wray mistakenly sent and quickly deleted a message about the US Navy escorting oil tankers through the strait, adding to market volatility. Investors are awaiting the US inflation data due later that evening to gauge the next direction.

• S&P 500 futures up 0.3%. Nasdaq 100 futures up 0.2%.
• Nikkei 225 closed up 1.4% at 55,025.37 points. Tokyo TSE index up 0.9% at 3,698.85. Seoul KOSPI up 1.4% at 5,609.95.
• Japan 10-year government bond yield down 2.5 basis points at 2.155%.
• US Treasury prices rose, with the 10-year yield down one basis point to 4.14%.
• US dollar spot index down 0.2%.
• Gold traded near $5,200 per ounce.
• WTI crude oil up 0.4% to $83.77 per barrel.
• Bitcoin down 0.7%, at $69,749.85.

Reserves Release Boosts Market Sentiment

The news of the IEA’s proposed strategic reserve release has become a key driver behind the market rebound. Khoon Goh, Head of Asia Research at ANZ Bank, said, “Markets remain cautious about the Middle East situation, so any news about strategic reserve releases—whether from the IEA, the US, or the G7—can provide short-term relief for oil prices.”

After Brent crude experienced its largest single-day drop in four years last Tuesday, it further declined by 0.2% on Wednesday. Joshua Crabb, Head of Robeco Hong Kong Asia-Pacific Equities, noted that initial oil price shocks seem to have been absorbed by the market, and benchmark oil prices are trending lower as there is “significant political will to push this situation.”

However, historical experience shows that the effects of reserve releases are not always as expected. In 2022, two releases initially pushed prices higher—market interpreted this as a sign that the crisis was more severe than anticipated—only later did they start to exert downward pressure.

Geopolitical Risks Persist, Market Volatility Remains

The conflict in the Middle East has entered its second week with no signs of easing. Trump warned Iran not to mine the Strait of Hormuz, and earlier reports suggested Iran was preparing or had already begun such actions. The Strait of Hormuz, which carries about one-fifth of global oil flows, remains under threat of blockade, pushing Brent crude prices higher since the start of the year and forcing oil-producing countries to cut output.

Last Tuesday’s market shock was partly triggered by a false report: US Energy Secretary Chris Wray mistakenly sent a message about the US Navy escorting an oil tanker through the Strait of Hormuz, then deleted it. The White House confirmed that the action never took place. This incident further pressured already fragile market sentiment.

Bloomberg strategist and MLIV team leader Garfield Reynolds said, “Unless freight volumes through the Strait of Hormuz quickly return to pre-war levels, energy prices will stay high because the conflict and actual blockade are cutting off supply, and production cuts are continuing to expand.”

Fawad Razaqzada of Forex.com added, “While traders are relieved by the sudden drop in oil prices, geopolitical tensions are far from stabilizing, and markets remain vulnerable to further shocks. Ultimately, the key factor is whether energy supplies in the region can return to normal.”

US Inflation Data as the Next Key Indicator

Amid ongoing Middle East tensions, investors are turning their attention to the US Consumer Price Index (CPI) data due later that evening. The latest employment report has already shaken confidence in the stability of the labor market.

Markets expect core CPI, excluding volatile food and energy prices, to rise 0.2% month-over-month, indicating some easing of price pressures before the outbreak of the Iran conflict and renewed inflation uncertainties.

Sean Darby of Mizuho Securities said, “The market may have been overly optimistic about overall inflation earlier,” but due to Middle East tensions, investors will likely “feel inflation impacts more quickly and intensely.”

Jun Bei Liu, co-founder and chief investment officer of Sydney-based hedge fund Ten Cap Investment Management, noted that while the reserve release news provides a temporary relief, maintaining hedging positions remains prudent. “It’s crucial to keep hedges in place, including allocations to some energy stocks, as the outlook remains highly uncertain.”

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