Oil price storm approaching: UBS warns of impact exceeding expectations, can the US emergency release of 172 million barrels turn the tide?

The global energy market is currently undergoing a new round of intense volatility. On one hand, international investment bank UBS issued a warning that the impact of the current rise in oil prices on the US economy may surpass market expectations; on the other hand, the Trump administration has taken consecutive measures, releasing strategic oil reserves, granting temporary waivers for the retention of Iranian oil sanctions on the sea, attempting to curb the rise in oil prices with a "combination of punches". However, whether the large-scale use of strategic reserves is a short-term pain reliever or a key variable that can truly reverse the trend of oil prices is being closely observed by the market. UBS sounded the alarm: the "cushion" of the US economy is gone On March 19, UBS released a new research report pointing out that the current US economy is facing multiple unfavorable factors overlay, and the destructive nature of the current rise in oil prices may far exceed the previous high oil price cycle. Looking back at the period from 2011 to 2014, despite the international oil prices were at a high level for a long time, the US shale oil revolution was in a period of vigorous expansion. Although high oil prices eroded consumer purchasing power, they also stimulated a boom in investment in the shale oil sector, increased employment, expanded industrial output, and formed an effective economic hedge. However, after 2014, investment in shale oil in the US significantly diminished, and this "cushion" has essentially disappeared. UBS further pointed out that there are three key differences between the macroeconomic environment of the current US economy and the previous high oil price cycles: The labor market is weaker. Compared to the high employment prosperity from 2011 to 2014, the current vitality of the US job market has declined significantly, and the economy's ability to absorb external shocks has weakened. Household cushion space is shrinking. With savings consumption after the pandemic and accumulating debt in a high-interest rate environment, the financial resilience of US households against external shocks such as the rise in oil prices has significantly decreased. Inflation transmission effects are stronger. The rapid rise in oil prices has a more acute transmission chain on overall prices, coupled with pressure on other living costs such as food, making the inflation impact more severe. Based on this, UBS judges that the drag effect of the current rise in oil prices on US economic growth may far exceed the general market expectations. The US government's "combination of punches": releasing reserves and granting waivers simultaneously Facing the continuous rise in oil prices, the Trump administration quickly took action. On March 20, the US Treasury approved a temporary authorization for 30 days to allow for the delivery and sale of ships that are currently stranded at sea and loaded with Iranian crude oil and petroleum products. Treasury Secretary Beasant emphasized that this authorization is "narrow in scope, specific in nature, and short in duration," strictly limited to oil already in transit, not allowing for new purchases or production activities. According to Beasant's estimates, this move will quickly inject approximately 140 million barrels of oil supply into the global market. At the same time, the US Department of Energy confirmed that as part of a global collective action coordinated by the International Energy Agency (IEA), the US plans to release 172 million barrels of strategic petroleum reserves (SPR), with an initial release size of approximately 45 million barrels. According to the established release rate, the entire process is expected to last approximately 120 days. It is worth noting that the IEA coordinated a total release of 400 million barrels of strategic oil reserves for its 32 member countries this time, setting a record for the largest collective release in the organization's history, far exceeding the two releases totaling approximately 183 million barrels during the Russia-Ukraine conflict in 2022. How effective is the release of reserves? Short-term effectiveness, medium to long-term concerns arise From market reactions and historical experience, the impact of large-scale release of strategic reserves on oil prices exhibits obvious "timeliness" and "structural" characteristics. In the short term, the release of reserves can alleviate the tension in the spot market, pressuring down prices of near-month contracts. Market data shows that traders have started selling near-term crude oil and buying long-term contracts, with the futures curve showing a "backwardation" trend, reflecting market expectations of increased short-term supply. In the medium term, geopolitical risks remain the dominant factor. Similar to 2022, the release of reserves usually can only hedge a portion of the supply gap and is difficult to fundamentally reverse the price trend. Currently, disruptions in the Middle East supply are larger, risks in key shipping channels such as the Strait of Hormuz continue to persist, and energy facilities themselves have become targets of attack in conflicts. Until these uncertainties subside, oil prices are likely to remain in a high-volatility range. In the long term, the continued release of reserves will significantly weaken the US's ability to cope with energy crises in the future. The total capacity of the US SPR is about 700 million barrels, but after multiple large-scale uses in recent years, inventory is at a historical low. After the release of 172 million barrels this time, the total SPR inventory will drop to approximately 244 million barrels, below the statutory red line of 252 million barrels. Considering the engineering structure requirements to retain a minimum safe reserve of 150-160 million barrels, even if the statutory red line is breached, there is insufficient space for further release. More crucially, this round of release is not a simple "sell-off" but more like a "loan mechanism" companies receiving crude oil will need to return it in the future and may come with interest. This means that the government will need to replenish stocks at higher prices in the future, adding additional financial burden. Conclusion UBS's warning and the emergency actions of the US government together outline a tense picture of the current global energy market: on one hand, the rise in oil prices is impacting the "lost cushion" of the US economy with stronger force; on the other hand, whether it is releasing strategic reserves or temporarily exempting Iranian oil sanctions, they seem more like emergency measures rather than fundamental solutions. The continued depletion of strategic reserves is overdrawing the US's future policy space, and the direction of geopolitical conflicts remains the core variable determining the ultimate direction of oil prices. For global investors and policymakers, this energy game is far from over.