- The US will release 1 million bpd of oil for 6 months starting in May
- Biden says allies could unleash 30-50 million barrels more
- IEA members meet on Friday at 1200 GMT
- OPEC+ is sticking to the existing agreement with a 432,000 bpd increase in May
- Benchmarks post biggest quarterly gain since Q2 2020
HOUSTON, March 31 – U.S. oil prices fell 7% to close just above $100 on Thursday as President Joe Biden announced the biggest release yet from the U.S. Strategic Petroleum Reserve and urged oil companies to step up drilling to cover the increase offer.
US West Texas Intermediate futures for May delivery were down $7.54, or 7%, at $100.28 a barrel after hitting a low of $99.66.
Brent crude futures for May, which expired Thursday, closed up $5.54, or 4.8%, at $107.91 a barrel. More actively traded June futures fell 5.6% to $105.16 after falling $7 earlier in the session.
Both benchmarks posted their highest quarterly percentage gains since the second quarter of 2020, with Brent up 38% and WTI up 34%, gaining mostly after Russia’s February 24 invasion of Ukraine, which Moscow is calling a “special operation.”
“This is a barrel-by-barrel market and (the SPR release) is a significant amount of oil to bring to market for an extended period of time,” said John Kilduff, partner at Again Capital LLC.
Biden’s release of 180 million barrels equals about two days of global demand and marks the third time Washington has tapped the SPR in the past six months. Continue reading
Beginning in May, the United States will release 1 million barrels a day of crude oil from the Strategic Petroleum Reserve for six months, Biden said, adding that an additional 30 to 50 million barrels of oil could be released by allies and partners. Continue reading
“We need to increase supply…Oil companies sitting on idle wells or idle leases need to start production or pay for their inaction,” he said. Continue reading
Other members of the International Energy Agency could also release barrels to make up for lost Russian exports after that nation was hit with heavy sanctions over its invasion of Ukraine.
Storage tanks are seen at Marathon Petroleum’s Los Angeles refinery, which processes domestic and imported crude oil into California Air Resources Board (CARB), gasoline, diesel fuel and other petroleum products, in Carson, California, the United States, March 11, 2022. Pictured captured by a drone. REUTERS/Bing Guan
IEA member countries will meet at 1200 GMT on Friday to decide on a possible collective oil release, a spokesman for New Zealand’s energy minister said.
However, each SPR release could also be a sign that Washington does not expect a quick resolution to Ukraine’s crisis, which has squeezed oil supplies, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“Clearly desperate times call for desperate action, and the Biden administration clearly believes that the rise in oil prices warrants this move to disrupt the country’s emergency supplies,” Streeter said.
Analysts at Goldman Sachs said the move would help the oil market rebalance itself in 2022 but was not a permanent solution.
“However, this would remain a release of oil stocks, not a permanent source of supply for years to come. Such a release would therefore not solve the structural supply deficit that has been building up for years,” they said.
Analysts also pointed out the low liquidity in the market, which led to outsized price movements.
“We’ve seen dwindling open interest and dwindling volume. A thin market is a volatile market and reacts very strongly to these various developments. To the extent that we win barrels or lose barrels, you get a big outsized reaction,” Kilduff said.
Meanwhile, at a meeting on Thursday, the organization of petroleum exporting countries and allies including Russia, known as OPEC+, agreed to stick to their existing agreement and raise their May production target by 432,000 barrels per day (bpd).
“In light of overnight developments, the OPEC+ decision appears to be a non-event. The 432,000 bpd increase was expected and built into the price. The decision has met with disappointment from consumer nations,” said Tamas Varga PVM Oil Associates.
Prices also fell on fears of lower demand in China as Shanghai is set to extend a COVID-19 lockdown.
Reporting by Florence Tan and Isabel Kua in Singapore; Edited by Marguerita Choy, David Gregorio and Nick Macfie