Oil prices dive as U.S. set to announce record reserves release

Storage tanks at Marathon Petroleum's Los Angeles Refinery in Carson, California, U.S.
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., March 11, 2022. Picture taken with a drone. REUTERS/Bing Guan

March 31, 2022

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices tumbled on Thursday with the United States set to announce the largest ever release from its Strategic Petroleum Reserve, while OPEC+ stuck to its existing deal for May output.

Brent crude futures for May, which expire on Thursday, were down $5.28, or 4.65%, at $108.17 a barrel by 12:31 a.m. ET. The more actively traded June futures were down 3.2% at $107.86, after falling by $7.

U.S. West Texas Intermediate futures for May delivery were down $3.88, or 3.6%, at $103.92 a barrel, off a low of $103.90.

Front-month futures for U.S. crude and Brent were on track for their highest quarterly percentage gains since the second quarter of 2020.

U.S. President Joe Biden on Thursday will announce the release of a record 1 million barrels of oil a day for the next six months from the U.S. Strategic Petroleum Reserve, the largest release ever, to try to bring down gasoline prices, the White House said.

“This is a market where every barrel counts and (the potential 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.

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.

“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.”

Goldman Sachs 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.”

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.

International Energy Agency 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 on Thursday.

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

(Reporting by Florence Tan and Isabel Kua in Singapore; editing by David Goodman, Jason Neely, David Gregorio and Nick Macfie)