By David Gaffen
NEW YORK (Reuters) -Oil futures fell sharply on Wednesday after large consuming nations said they would release oil from reserves to counter tightening supply and hawkish minutes from the U.S. central bank that bolstered the dollar.
Selling accelerated into the close, leaving both the Brent and West Texas Intermediate benchmarks at their lowest closing levels since March 16. Brent crude futures settled down $5.57, or 5.2%, at $101.07 a barrel, while U.S. crude fell $5.73, or 5.6%, to $96.23 a barrel.
Member states of the International Energy Agency (IEA) will release 120 million barrels from strategic reserves to try to quell price gains. The release will include 60 million from the United States, according to two sources familiar with the matter. That commitment forms part of the previous U.S. announcement of a 180 million-barrel reserve release.
This is the second time the IEA has released reserves this year and effectively boosts worldwide supply by roughly 2 million barrels a day for at least the next two months as the world tries to overcome the potential loss of Russian oil. The group collectively has about 1.5 billion barrels in strategic reserves.
Crude markets have been through weeks of volatility, with prices surging on supply concerns after Russia's invasion of Ukraine and subsequent sanctions on Moscow by the United States and its allies.
Lately the market has been pulling back following reserve releases along with worries of slowing demand in China, where a resurgent pandemic has prompted lockdowns of cities including Shanghai. Chinese refiners of late are avoiding new contracts with Russia, suggesting Beijing is being cautious not to overtly support Moscow at this time.
The U.S. Federal Reserve minutes, meanwhile, detailed that the U.S. central bank was planning to raise rates by 50 basis points at its most recent meeting, but opted for a smaller hike due to the war in Ukraine.
The minutes suggest a hawkish approach for the Fed as it tries to curb inflation, which boosted the U.S. dollar. Oil often moves in the opposite direction to the dollar because most oil transactions are conducted in the U.S. currency.
"This market mostly appears to be reacting around the Fed comments and the EIA storage report," said Gary Cunningham, director of market research at Tradition Energy. The Fed has "given some strength to the dollar and that's being reflected in lower oil prices."
U.S. crude stocks rose by 2.4 million barrels in the latest week, the U.S. Energy Information Administration said, while analysts had expected a drawdown. Output also rose, hitting 11.8 million barrels a day, the most since late 2021, and output is expected to continue rising. The United States also released nearly 4 million barrels from its strategic reserve in the week.
"The SPR release was huge which does raise confidence that they can move a lot out of the reserve on a weekly basis," said Phil Flynn, senior analyst at Price Futures Group in Chicago.
The United States and allies on Wednesday prepared new sanctions on Moscow over civilian killings in Ukraine, which President Volodymyr Zelenskiy described as "war crimes." Russia denied targeting civilians.
The 27 member states will decide whether to approve proposed EU sanctions that would ban buying Russian coal and prevent Russian ships from entering EU ports.
The head of the EU's executive, Ursula von der Leyen, said the bloc was working on additional sanctions, including on oil imports.