By Barani Krishnan
Investing.com -- Oil longs were staring at their worst week in two years on Friday as trading for April began, with U.S. crude settling below the key $100 per barrel support and big gains for the first quarter already in the rear window.
London-traded Brent, the global oil benchmark, settled down 32 cents, or 0.3%, at $104.39 per barrel after a session low at $102.37. Week-to-date, Brent was down 13%, its biggest weekly decline since April 2020. On Thursday, it finished the first quarter up 39%.
New York-traded U.S. crude benchmark West Texas Intermediate, or WTI, settled down $1.01, or 1%, at $99.27 a barrel, after an intraday low of $97.81. WTI was down almost 13% on the week for its biggest weekly drop since April 2020. On Thursday, it settled first quarter trading up 33%.
The Biden administration announced on Thursday that it will release a record of 1.0 million barrels per day of oil from the U.S. Strategic Petroleum Reserve over the next six months to alleviate a global supply crunch.
Analysts across the energy sector warn of a worsening supply crunch in the coming months as the United States upholds its ban of Russian oil, while many other nations avoid business with Russia as well, due to sanctions imposed against Moscow over its war on Ukraine.
Despite such warnings, the world’s biggest oil exporters in OPEC, along with their allies, which include Russia, decided on Thursday to do just a modest production increase for next month. The wider oil producers’ alliance, known as OPEC+, said it would increase output in May by 432,000 barrels a day. That’s a slight uptick from its typical monthly increment of 400,000 barrels per day in a market analysts said was in need of around 5 million barrels more.
OPEC+ also said on Thursday that the recent volatility in oil prices was “not caused by fundamentals, but by ongoing geopolitical developments,” in an apparent reference to the war in Ukraine. Brent hit 14-year highs of almost $140 per barrel in the aftermath of the sanctions imposed on Russia and have largely held at above $100 over the past month.
Amos Hochstein, the Biden administration's special envoy for international energy affairs, said on Friday that the 180-million barrel release from the SPR was the just the beginning of more such supply that will come on board.
“I believe that we’re going to have additional capacity coming online from our allies,” Hochstein told Bloomberg TV. “There’s a meeting that is going on right now of the IEA, the International Energy Agency, to look at additional releases from the international market so we won’t just have oil coming on the market in the United States, but rather have oil coming online to the market in Asia, as well as Europe over the next several months.”
But energy market analysts appeared skeptical of the plan’s success.
“The knee-jerk selloff from the SPR announcement of the release of 1-million barrels a day from the SPR over the next six months won’t have a lasting impact on oil prices, so if geopolitical risks continue to intensify, oil will recover most of this week’s losses,” said Ed Moya, analyst at online trading platform OANDA.
Biden ordered the release of 50 million barrels from the SPR in November and 30 million last month, in coordination with the reserves released by other countries that included China, Japan, India, South Korea and Britain.
The SPR had 568.3 million barrels in its stock as of the week ended March 25, according to the U.S. Energy Information Administration. With the current release plan of 180 million barrels over the next six months, the nation’s reserve could be drawn down to a third of its current size.
Biden began tapping the SPR to provide U.S. refiners with oil loaned from the reserve that they wouldn’t have to pay for but return within a stipulated period. By doing this, the administration hoped there will be fewer transactions of oil in the open market and prices for both crude and fuel products like gasoline and diesel would come down.
In recent weeks, the administration has released some 3.0 million barrels weekly from the SPR. But the government’s efforts have had a negligible effect so far on prices, with refiners turning out more products than they usually do at this time of year, resulting in extraordinarily high usage that has kept prices little changed on both the crude and oil products fronts.
Separately, the Transportation Department announced on Friday that U.S.-made cars are to deliver a fuel efficiency of 49 miles-per-gallon from 2026 versus the existing 35-mpg requirement as the Biden administration speeds up reduction of fossil fuels consumption amid near record high pump prices at above $4 per gallon.
Biden also announced on Thursday his administration’s intent to invoke Cold War-era powers to boost domestic output of critical metals and minerals for the making of electric vehicles and the batteries to power them.