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Oil slumps 7% as U.S. plans record crude reserve release

Commodities Mar 31, 2022 03:36PM ET
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© Reuters. FILE PHOTO: Storage tanks are seen at Marathon Petroleum's Los Angeles Refinery, which processes domestic & imported crude oil into California Air Resources Board (CARB), gasoline, diesel fuel, and other petroleum products, in Carson, California, U.S., Ma
 
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By Arathy Somasekhar

HOUSTON (Reuters) -U.S. oil prices fell 7% to close just above $100 on Thursday as President Joe Biden announced the largest ever release from the U.S. Strategic Petroleum Reserve and called on oil companies to increase drilling to boost supply.

U.S. West Texas Intermediate futures for May delivery settled down $7.54, or 7%, at $100.28 a barrel, after touching a low of $99.66.

Brent crude futures for May, which expired on Thursday, closed down $5.54, or 4.8%, at $107.91 a barrel. The more actively traded June futures were down 5.6% at $105.16, after falling by $7 earlier in the session.

Both benchmarks posted their highest quarterly percentage gains since the second quarter of 2020, with Brent soaring 38% and WTI gaining 34%, boosted mainly after Russia's Feb. 24 invasion of Ukraine which Moscow calls a "special operation."

"This is a market where every barrel counts and (the SPR release) is a significant volume of oil to be put on the market for an extended period of time," said John Kilduff, a partner at Again Capital LLC.

Biden's 180 million-barrel release is equivalent to about two days of global demand, and marks the third time Washington has tapped the SPR in the past six months.

Starting in May, the United States will release 1 million barrels per day of crude oil for six months from the Strategic Petroleum Reserve, Biden said, adding that 30 million to 50 million barrels of oil could be released in addition by allies and partners.

"We need to increase supply... Oil firms sitting on idle wells or unused leases will have to start producing or pay for their inaction" he said.

Other members of the International Energy Agency may also release barrels to offset lost Russian exports after that nation was hit with heavy sanctions for its invasion of Ukraine.

IEA member countries are set to meet on Friday at 1200 GMT to decide on a potential collective oil release, a spokesperson for New Zealand's energy minister said.

However, any SPR release could also be a sign that Washington does not expect a quick resolution to the crisis in Ukraine, which has squeezed oil supplies, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV).

"Desperate times clearly call for desperate measures and clearly the Biden administration believes the spike in oil prices warrants this move to eat into the country’s emergency supplies," Streeter said.

Goldman Sachs (NYSE:GS) analysts said the move would help the oil market to rebalance in 2022 but was not a permanent fix.

"This would remain, however, a release of oil inventories, not a persistent source of supply for coming years. Such a release would therefore not resolve the structural supply deficit, years in the making," they said.

Analysts also pointed to low liquidity in the market causing outsized moves in prices.

"We've seen dwindling open interest and dwindling volumes. A thin market is a jumpy market, and highly reactive to these various developments. To the extent we gain or lose barrels, you get a big outsized reaction," Kilduff said.

Meanwhile, the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, agreed at a meeting on Thursday to stick to its existing agreement and raise its May production target by 432,000 barrels per day (bpd).

"In the light of the overnight developments, the OPEC+ decision seems to be a non-event. The increase of 432,000 bpd has been expected and built into the price. The decision will be greeted with disappointment from consuming nations," said Tamas Varga at PVM Oil Associates.

Prices also declined due to fears of lower demand in China as Shanghai is set to expand a COVID-19 lockdown.

Oil slumps 7% as U.S. plans record crude reserve release
 

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Comments (24)
Sean Nolan
Pendragon Mar 31, 2022 8:03PM ET
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This should get baked in by the afternoon. Maybe it's time to go along on oil again
Kelly Mayer
Kelly Mayer Mar 31, 2022 4:37PM ET
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Guess draining reserves is not an issue of concern...
Sattar Langary
Sattar Langary Mar 31, 2022 1:23PM ET
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It is a good idea to drill more oil too. Climate issue can wait in emergency times.
Shep De
Shep De Mar 31, 2022 11:33AM ET
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Oil's going to blow through this, should've been done to a greater extent last time SPR's released March 1, bad, bad idea now by Biden admin. to not have doubled SPRs March 1 to shock markets. Gee, sounds like FED incompetent 0.25% 1st hike when 0.50% needed. The majority actually wanted bigger hike but succumbed to Powell's transitory thinking that gradual interest rate hikes will be OK, we don't need to "front-load" this 1st hike, govs, as you, quote, say. I got this. Very much in danger of runaway inflation w/in a month now, with 1st understanding via Jobs report showing wage growth stagnating & PMI showing manufacturing status quo--supply constraints/inflation headwinds all --the while as more jobs get created, creating even worse inflation. Then,, comes ISM services hotness next week. CPI on 12th, likely, 9%, my guess, 9.3% YoY. Oil, of course, is going up because consumer is using it albeit their spending more than they are making, hence, my term, "treadmilling," going nowhere
Maximus Maximus
Maximus Maximus Mar 31, 2022 10:43AM ET
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lol, the putler/trumpanzee trollfarm are all out of their cages today
hari bala
hari bala Mar 31, 2022 10:00AM ET
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No down
hari bala
hari bala Mar 31, 2022 10:00AM ET
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no down
hari bala
hari bala Mar 31, 2022 9:59AM ET
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no down
hari bala
hari bala Mar 31, 2022 9:59AM ET
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no down
Vilmos Varga
Vilmos Varga Mar 31, 2022 7:47AM ET
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This US solution didn't work in the last year as well.  Possible that OPEC+ reduces the output by 500k bpd to balance US manipulation. In this case US can refill the stock with a higher price oil. The higher oil price is caused by FED unlimited money printing in the last years as well.
 
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