What is needed to steady volatile oil markets?

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Oil prices continue to swing.

What options are there to steady the prices?

Let's draw down these sanctioned barrels.

That buffers the first to go.

And then there are non-sanctioned barrels.

And then you have the strategic reserves,

which should be held as your last resort.

Welcome to World Business Report from the BBC World Service.

I'm Sam Fennick.

It's been another busy day for oil markets.

Prices started the day at $90 a barrel.

It climbed to 94 before falling to around 81 amid mixed signals from Washington.

And the International Energy Agency has been meeting to consider

whether releasing emergency reserves could help stabilize the market.

So a series of events today,

Tuesday has led to big swings in the oil price.

There's been confusion over whether the US Navy had escorted a tanker

through the strait of hormones,

a claim initially made by the US Energy Secretary

before the White House said that it didn't happen.

At the same time, the conflict itself appears to be intensifying

with reports of heavy strikes inside Iran

and attacks on energy infrastructure in the region.

All of that has been feeding directly into the oil market.

So how are traders reading the developments?

George Convoy is with us throughout the show today.

He's Chairman of Brighton Securities at Rochester, New York.

So let's get started and clear up what happened earlier today.

The cost of a barrel of Brent Crude dropped sharply

after the US Energy Secretary posted on X

that the US had successfully escorted this oil tanker through the strait.

However, the post was then removed

and the White House said in a press conference that it wasn't escorted.

What do you make of all of that?

What I make is why I'm still in this business every day,

there's something I've never seen before,

a deleted tweet from a federal official.

It dropped the prices because traders saw that as a very positive sign.

When that positive was removed, prices popped back up,

but a real crazy event.

Iran's foreign minister accused the US of posting fake news

to manipulate markets.

And Donald Trump has taken to his social media platform truth

social after that saying that any minds

that are in the strait basically warning Iran over those.

So there is a war going on with drones and weapons,

but there's also a war of words, isn't there?

Absolutely, it might be the first time I've ever seen an Iranian official

post something demonstrably true,

but it's quite a war of words as well as bullets.

How are you expecting the market to react going forward?

Are they reacting to what is immediately happening?

Or are they trying to price in what they think might happen?

That's always both Sam.

There's the short term money you try to make

by trading the swings,

and there's slightly longer term money

by what you think is going to happen tomorrow or next week.

But in the oil markets, as long as I'm in business,

the most predictable thing is unpredictability.

You say that, and then you talk to businesses

who say that they're very concerned about the uncertainty

and the unpredictability.

Yet they're all operating in this sector.

Sure, well, they have to.

The fact is that if you're in that oil business

or you're a consumer of oil,

you need that product,

you know there's going to be volatility,

and all you can do is the best you can do,

knowing that all your competitors are facing the same variable.

And that's going to end up pricing itself into the product or service.

Okay, George, stay with us because we're going to move on

because all the volatility in the oil prices

prompted the International Energy Agency,

which advises major economies on energy security

to hold emergency talks in Paris on Tuesday afternoon.

The agency is concerned that difficulties moving oil

through the strait of humours,

along with disruptions to production,

could pose growing risks to global markets.

One option discussed at the meeting was

whether countries might release emergency oil stockpiles

to help stabilize supplies.

Neil Atkinson is the former head of oil industry

and markets at the IEA.

And he's been involved in meetings like this.

And I asked him how the IEA operates

and what it could take to,

what it would take to release some of its oil reserves.

To be a member of the IEA,

you are obliged to hold stocks,

equivalents and 90 days of net imports.

So how much oil are we talking about then?

Well, the IEA collectively today has got roughly

in the region of 1.2 billion barrels of crude oil,

which is government-held strategic stocks.

In addition to that, there's another 600 million barrels,

which is held by companies in the IEA countries,

which are compulsory stocks held by companies under IEA mandate.

So where is the oil stored?

Is it in kind of underground caverns or tanks or something else?

Well, both. I mean, the United States, for example,

has a network of underground caverns

a lot of them located in the Gulf Coast region,

Louisiana, dotted around the country.

Other countries have similar underground facilities.

In addition to that, there is tank storage.

And space that is taken at, for example,

oil refineries,

where there's significant storage capacity available.

And the process of releasing that oil,

does it go straight onto the open market?

Well, in theory, yes, what happens is that the countries

collectively agree that they will release

or they will offer to the market a given number of barrels

over a certain period of time.

And then the issue is how much the people who take the oil

have to pay for it.

So this meeting that has been held this afternoon,

Tuesday afternoon in Paris,

do we know the outcome of it?

Is it the first meeting of a few?

Have they decided to release some of them?

No, I think it's at least the third meeting

that has happened over the last few days.

Up till now, no decision has been made

to authorize a release of oil.

You will have been in similar meetings in the past.

What do you think will be the point at which

they decide to release some oil?

How bad does the situation need to get?

Well, you need to separate price from volume

because in theory, the IEA's emergency stock release mechanism

comes into action when a percentage of global supply

is cut off or affected.

So when will that be?

Well, that's the big question.

What the oil price is at any one time is another matter.

Now, at the moment, we're in the situation now

where because normal traffic through the state of the

Moses not been taking place for about 10 days or so now,

it will take countries and companies

are starting to run down on their stocks.

So for example, if you're an oil refiner that buys oil

from Saudi Arabia and it comes on a ship,

it's not been coming on a ship for the last week or so.

So you are running on stocks which are held at your refinery.

So at the moment, there is no actual shortage to the market.

However, we are very close now and it's probably only a matter of days

to a situation where unless we get the resumption of traffic

through the state of the Moses,

we will not be able to continue to have the industry function properly

and therefore an injection of supply into the market

in the form of an IEA stock release will be necessary

and we're pretty close to that now.

Are these circumstances unusual that there is a lot,

there is oil out there, there's lots of oil.

I mean, we've heard today from Saudi Aramco's boss

saying that they are filling up their supplies very quickly

and they're going to have to switch off the production

because they've got nowhere else to put the oil

because they can't get it out.

It's the transportation of this oil that's causing the problem.

Well, it's never happened before on this scale.

What we need to remember is that there has been interruption

to supply from the Gulf before and of course,

outside of the region we had Russia Ukraine.

What is unique about this situation

is that we have a defect to closure of the state of Humus,

a total closure and at the moment we don't know when it will end.

That has never happened before.

So is there a danger that if we release from our emergency stores

that we might not be able to fill them back up again?

Well, that's the good point.

I have great sympathy with the IEA

because it's a very difficult recommendation to make.

The IEA's job now, which is what they are doing,

I guess even as we speak,

is to communicate with the member governments

about how much stock they have on hand

in addition to what they're actually obliged to have

because the US has a lot more, for example,

than it's obliged to have.

And the IEA will look at all those numbers

and think, well, on balance, we'd probably recommend

that the group collectively draws down its strategic stocks.

So it's a big deal.

If you have no visibility whatsoever

as to when normal operations to the straight homeless will resume.

So the longer the straight is closed,

the more difficult the situation is.

Yes, absolutely.

The key to everything is the resumption of normal operations

as soon as possible through the straight homeless.

Donald Trump has talked about the US Army

escorting oil tankers through the straight.

How important could that be?

Well, you can't escort all of them.

It's just not feasible.

And the cost of underwriting the insurance

because insurance rates are shot through the roof is colossal.

So yes, it's a gesture and it's been well received.

But the reality of it is in no way could you escort

the normal level of traffic that flows through the straight homeless every day.

That was Neil Atkinson, former head of oil markets

at the International Energy Agency.

Despite the tensions in the global energy markets,

the Trump administration has so far been reluctant to release oil

from the United States strategic petroleum reserve.

Officials say strong US production means there's no immediate shortage of supply,

although political and logistical factors may also be influencing that decision.

So what's behind that approach?

Sarah Emerson can tell us more.

She's the founder and president of E.S. AI Energy,

a consultancy firm based in Boston.

I would suspect from the United States side,

there is a feeling of this conflict is not going to last that much longer

and we'll be able to see tankers moving through the straight of hormones

which eliminates the supply disruption or at least

emilia rates, the supply disruption.

So I mean, to my mind, at $80 or $90 crude oil

and the expectation that the conflict will maybe not last that much longer,

I'm not surprised they made the decision to hold off on the drawdown.

You agree with that assessment by the sounds of it.

And I try not to agree or disagree,

but just to analyze and I think that's probably why it happened.

What's the crunch point then?

How bad does it need to get before any oil might be released from these emergency stores?

Well, you remember the strategic reserves are one of several tools

for managing this disruption.

The first tool is you have significant inventories at C right now.

You have all of the sanctioned crude of Iran and Russia

that has not been delivered or unloaded because of sanctions.

That crude, well a couple of days ago we calculated it was about 300 million barrels.

So that has to be delivered.

What the US Treasury Department did is they said to the India,

you may have a waiver from the sanctions against

lukegoil and rosineft and actually import that crude.

I mean, that's why the oil price is not $120 like it was Sunday night.

It's because there is this additional buffer.

That buffer is the first to go and then there are non-sanctioned barrels

that are in tankers or in on land commercial inventories.

They also can provide a little bit of a buffer and then you have the strategic reserves

which should be held as your sort of last resort draw down.

All of that suggests this is this was premature to do this right now.

The boss of Saudi Aramco has been talking today saying that there are concerns

that their storage is actually filling up and once it's full up

they might have to switch off production.

How difficult could that be to get started again?

Well, I believe they've already begun shutting in production

and so has the UAE and Kuwait and Iraq.

That is already happening and this disruption is very real.

Your question is if this conflict were to end tomorrow, how long would it take?

And I think this is where you have to make a distinction between

spare capacity which they were holding off the market prior to the conflict

and actual production that they've been producing up through the beginning of the conflict.

And I think that volume, that latter volume, I think can come back fairly quickly,

maybe within two to four weeks.

The volume that everyone talks about in the press is this spare capacity

that was not being produced and the definition of that spare capacity is it takes 90 days.

So those are two different sources of supply.

In terms of this conflict, have you ever seen anything like it before?

We've seen this oil price jump around from $110, $90, $89, a barrel kind of bouncing around.

Is this sort of conflict, is this war worrying you about the global state of oil production?

No, we've had oil crises before.

We had them in 1973, 1979, 1991, 2003.

I mean, there's been several times where we've had oil supply crises.

You could argue the pandemic, which started as a demand crisis became,

you know, we also saw a significant reduction in supply.

I mean, this is the nature of the beast.

This is, you know, if you're going to depend on oil,

you're depending on a significant volume coming from the Arab Gulf region,

which means you're depending on maintaining that 30 mile straight

so that oil can flow through it.

So I think for those of us who've been in this industry for a long time,

this is not a shock.

It's just here we go again.

Sarah Emerson, their president of EAAIA Energy and she is in Boston.

George Combo is listening to that.

George, we've only really seen the US releasing its strategic oil reserve a few times during the

91 Gulf War, Hurricane Katrina in 2005, as part of an international effort to offset supply

disruptions from Libya in 2011.

And then most recently under Joe Biden in 2022 and the war in Ukraine,

do you think we'll see the release of oil in the short term, in the long term, or not at all?

No, I think probably not.

At least that's what markets seem to be betting now.

markets seem to agree with Sarah Emerson that the war, at least the disruption in petroleum

supply will be relatively brief.

Watch the price as your barometer of whether traders continue to think that.

But for now, that's what they're thinking.

Sarah was talking about how there is oil out there.

It's just we can't get to it because of the issues with the straits.

Could that then, if we know that there's oil out there,

will that kind of alleviate the price, do you think?

Is that why we've not seen it shoot up quite so high?

Sure, because the figurative pipeline, ships in the state of Hormuz or wherever it might be,

that figurative pipeline is interrupted, but it's not shut.

If events change, you'll see the prices change.

But for now, it wouldn't take too long to get that sequestered oil, whether it's with the

Saudis or wherever else, wouldn't take that long to get it into that figurative pipeline.

Okay, George, stay with us. We will come and talk to you again in a moment.

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You're listening to world business report from the BBC World Service with me, Sam Fanich.

While staying with the war in the Middle East and the boss of the global shipping giant

Merseq has been telling the BBC that the war is having a profound impact on trade and warn

that disruption could worsen if the straight of homeless remains closed.

Merseq, the world's second largest container shipping company, has suspended bookings

two and from Gulf states as well as Iraq and Jordan.

Ships are also being diverted away from the Suez Canal,

instead traveling around the Cape of Good Hope.

The company's chief executive Vincent Clerk has been speaking to the BBC's Jonathan Josephs.

With the experience that we have had in the Red Sea,

with the attack by drones from the hoodies towards international

transits there, I think we have learned an important lesson, which is that you don't need

very sophisticated naval capabilities. You need to have sufficient drones that you can try to

overwhelm the defense that those ships can have from the escorts that they might have.

And so for us, the main concern is the safety of our crews,

is the safety of our assets. And as long as there are significant drone capabilities,

no assurance of a truth, then it's very hard for us to put our colleagues and our ship in

harm's way and risk having an attack be successful and create damage or loss of life in the process.

Another option that's being discussed by President Trump and President Macron

is the idea that there could be some kind of navy escort to get ships through the

street of Hormuz and perhaps even the Red Sea. If that's something you would welcome,

do you think it's even a feasible idea? We would need to look at what they can put in place,

what are the type of guarantees they can put, what type of systems can they put in place,

and intensity they can put in place to protect these sailing routes. And then we'll have to take

it from there. Without knowing what the solution is, it's very difficult for me to deal on the

hypothetical. But what I can say is whether this has a diplomatic solution or military solution,

we are eager to see the straight of Hormuz reopen. We are eager to having free traffic and freedom

of navigation restored, but it will have to be with a safety first in mind and something that

I think is going to be important for us and is going to be important, frankly, for all the

vessel owners that are concerned by this situation. Vincent Clark, there, the CEO of Merck's

the big shipping giant, he was talking to Jonathan Joseph's. While many of those Merck's ships

will be taking cargo from East Asia to Mexico, and they've been grappling with supply chain

disruption caused by the Trump administration's tariffs. Mexico has faced extra tariffs on

products that it sends to the US, but at the same time is also attempting to stop a flood of Chinese

imports into Mexico. Ted Cifer has been speaking to businesses in Mexico City. Mexico City's historic

centers home to majestic colonial era churches, pernate palaces, and the remains of the great

Aztec pyramids they were built over. It's also a bustling commercial district, and in recent years

it's become a crucible for global trade tensions. Here in the center's traditional garment district,

you can find block after block of small shops and street vendors selling very cheap imported

shoes, clothing, toys, and various other products, much of them from China. Alex Mufud, the proprietor

of his family's 75-year-old swimsuit shop, has eyed these developments wearily. His business,

creations by Gladys, still designs and manufactures all of its swimsuits in Mexico.

The Chinese are invading the market in all sectors, and clothing they're flooding it with cheap

low-quality goods. People focus more on the price, so if it's cheaper, they buy it. But for local

manufacturers like us, it really affects us. Since the pandemic, experts from China to Mexico have

surged. They totaled nearly $130 billion worth in 2024, a more than 60% increased from 2019.

Well, the presence of China in Mexico has increased dramatically, no?

This is Professor Enrique Dusel-Peters, who heads the Center for China-Mexico Studies

at the National Autonomous University of Mexico. China has become an important

importer in Mexico of highly sophisticated Chinese goods that are being used mainly by US-American

transnational corporations. According to official Mexican government figures,

electronics make up the vast majority of imports from China, and many of these components end up

in products shipped to the US, where Mexico sends 80% of its exports. To understand Mexico's recent

tariff hikes, which double pre-existing rates to about 30%, Dusel says one need only look to the

north. And it again very quickly refers to the pressure of the United States, which has been very

clear since early 2025. We do not want to see in Mexico a China. We don't want to see

Chinese tourism, Chinese investment, Chinese trade, Chinese technology, Chinese telecommunications.

There's another important dimension of China's trade with Mexico. A good portion of it is off the

books. Over the past couple of years, Mexican authorities have periodically rated shopping

classes across Mexico to seize tons of contraband products from China, including in Mexico's historic

center. The official line is that they are trying to protect domestic manufacturing in Mexico.

I recently chatted with a shop owner, Paula Tapia, at one of these classes in the historic center.

Her inventory is varied, cell phone accessories, athletic wear, t-shirts.

Some products are from here, Mexico City, but some come from China.

Paula is not a big fan of the Mexican government's efforts to clamp down on trade with China.

She says they've led to higher prices and that the rates on suspected contraband

unfairly impact vendors with limited resources.

I think it's bad because we all have needs. Even if we don't always do the right or wrong thing,

I feel we need to think and put ourselves in each other's shoes.

There's another reason my Mexico may be keen to take a harder line toward China.

This summer, it will join officials from the U.S. and Canada to renegotiate their

long-standing free trade agreement, known as the U.S. MCA. Mexico's tariffs may, at the very least,

signal that it's on the same page as its powerful neighbor to the north.

That was Ted Cifer reporting for us there from Mexico City. George, obviously,

there's been a lot of attention on oil prices over the last two weeks or so.

They were in the Middle East, but we are still expecting to see blanket tariffs of 15 percent

on all goods entering the U.S. So businesses in the U.S. must be preparing for that.

Right, have been for some several months now, and there's a mix of things that businesses are

doing. Some are swallowing some of that cost and baking into their lower profit margins.

Others are raising prices very cautiously and looking to the left and right at their competitors

to see what they're doing. So it's happening across the board in many different industries.

Is there a bit of confusion, though, after that Supreme Court ruling on what tariffs should

be paid, whether there's going to be a rebate? So are we any clearer on what's happening there?

No, we're much less clear after the Supreme Court ruling. At least before we knew all right,

they're tariffs. We have to deal with them. We can do A, B, C, or D, but now we don't know if

tomorrow there'll be tariffs or not, whether it will get some of our money back in a refund lawsuit.

So a lot more ambiguity than we had just a few weeks ago.

Well, yeah, but despite all of those tensions in the oil market and with tariffs,

some companies in the U.S. are rushing to raise money, aren't they? So Amazon's leading the way

in what could be the biggest U.S. corporate bond sale. When a company sells bonds,

it means it's going to borrow money from investors. Is that basically what that means?

That's exactly what it means. We need more money and we don't want to share our equity.

So please lend us some. Amazon is a very high quality credit.

So how much money they are looking to borrow from their investors?

I think it's up to $50 billion. I think they did $37 billion today. That's the biggest offering

since 2013. That's a little while. And the fourth largest one-day bond offering in history.

So that's big money. So it's huge money. They look like they're heading towards that $50 billion.

What are they going to use it for? Well, they use it for all kinds of corporate purposes.

You know, it's interesting that as sovereign credits, like U.S. Treasury bonds or British guilt,

becomes slightly less attractive as politicians don't seem to be very responsible.

Companies like Amazon that have the discipline of the market to keep them tight-fisted

look like a more attractive place for investors to lend money. So you'll see more big offerings

like this. I was going to ask you all the full firms looking to raise money in a similar way.

Yeah. There are several large companies looking to raise not as much as Amazon. Amazon's a very

large company. But as other big companies look to continue spending on AI, you can expect some of

that money to come from the debt market, not the equity side. I was just about to say those words.

Is that AI, you know, artificial intelligence? Is that what you think is driving it?

Oh, it's huge. I think this year we're expecting some of the largest AI spenders to spend $650 billion

and Sam, that's triple what they all spent collectively in just 2024.

Wow. Thank you so much, George Conboy, for joining us today on the program. Thank you to you

for listening. Josh Martin was the producer. I'm Sam Fennick. Don't forget to subscribe to our podcast.

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