HOUSTON: US oil prices fell 7% to close just above US$100 (RM420.60) yesterday as President Joe Biden announced the largest ever release from the US Strategic Petroleum Reserve and called on oil companies to increase drilling to boost supply.
US West Texas Intermediate futures for May delivery settled down US$7.54, or 7%, at US$100.28 a barrel, after touching a low of US$99.66.
Brent crude futures for May, which expired yesterday, closed down US$5.54, or 4.8%, atUS$107.91 a barrel. The more actively traded June futures were down 5.6% at US$105.16, after falling by US$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.
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,” 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 yesterday 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. – Reuters