Oil headed for the biggest weekly loss in more than 10 years after the Biden administration ordered an unprecedented release of US strategic reserves to tame rampant prices.
West Texas Intermediate swung between gains and losses Friday, and was down more than US$13 dollars this week, the most since 2011. The US plans to release 1 million barrels a day for six months. IEA nations also agreed to release another round of crude stockpiles, with volumes being decided later. US President Joe Biden expects allies to release an additional 30 million to 50 million barrels.
Citigroup Inc. said the US appeared to have taken steps to ensure that it could deliver the promised volumes, despite having never drawn down that much oil from the reserve stockpile. Goldman Sachs Group Inc. cut its price forecasts for this year but boosted the estimate for 2023, arguing that the move won’t fix a longer-term supply crisis.
Releasing 1 million barrels a day from the US Strategic Petroleum Reserve “can easily be accomplished,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Biden’s decision follows rocketing gasoline prices in America and concerns about supply shortages following Russia’s invasion of Ukraine. The war has roiled global commodity markets and driven up the price of everything from fuels to food. It has also led to tumultuous trading in oil, with massive intraday swings throughout March. WTI traded in almost a US$37 range last month.
The US already tapped its reserves twice in the past six months, but that’s done little to cool prices. As much as 180 million barrels may be released this time, and Biden said he expects another 30 million to 50 million more barrels from allies. American physical crude prices tumbled.
“The market is short about 2 million barrels a day, if not more, from Russian supplies into the global market,” Amos Hochstein, the US State Department’s senior energy security adviser, said in an interview on Bloomberg Television.
- WTI for May delivery fell 55 cents to US$99.73 a barrel at 1:30 pm in New York.
- Brent for June settlement rose 18 cents to US$104.89.
The Biden administration’s giant oil release puts it in stark contrast with OPEC+, which on Thursday ratified a planned, modest production increase of about 430,000 barrels a day in record time. The decision comes after many consuming countries, including the US, have called on the alliance to increase output.
The market also came under some technical pressure Friday as WTI breached its 50-day moving average for the first time since early January. Brent also slipped toward that level before rallying away from it.
Prices also slide this week amid concerns about Chinese demand as the world’s biggest oil importer implements a series of lockdowns to curb a resurgence of COVID-19. Those curbs are starting to affect the economy, with manufacturing activity contracting in March.
- Shell Plc may have difficulty paying for Russian gas supplies this month because the Kremlin wants payments transferred through UK-sanctioned Gazprombank JSC, according to two people familiar with discussions in Russia.
- A seller of Russian crude gave Chinese buyers the flexibility to pay in yuan, as the energy giant attempts to keep its few remaining export channels flowing smoothly
- Russia’s economy has staggered through the first full month of the war with Ukraine but it may yet emerge with a sparkling balance sheet if some of its biggest trade partners don’t turn off the tap on its exports of energy.