Oil extends slide before consumer nations’ meeting on reserves release

SINGAPORE (REUTERS) - Oil prices fell another 1 per cent on Friday (April 1), ahead of a meeting of consuming nations to discuss a new release of emergency oil reserves alongside a huge planned release by the United States.

US West Texas Intermediate (WTI) crude futures were down 1.1 per cent to US$99.17 a barrel by 4.40pm Singapore time. The contract slumped 7 per cent on Thursday.
Brent crude futures slid 1 per cent to US$103.69, after dropping 5.6 per cent on Thursday.

The planned US release caused Thursday’s price falls. On Friday, the two benchmark contracts were headed for a weekly loss of 13 per cent to 14 per cent, their biggest in two years.

Member nations of the International Energy Agency (IEA) will meet at 8pm Singapore time on Friday to discuss a further emergency oil release that would follow their March 1 agreement to release about 60 million barrels.

On Thursday, US President Joe Biden announced a release of one million barrels per day for six months, starting in May. That will be the largest release ever from the US Strategic Petroleum Reserve (SPR).

The aim is to make up for disrupted oil supplies from Russia, hit by sanctions following its invasion of Ukraine, which Moscow calls a “special operation” to disarm its western neighbour.

Oil prices could reverse course, however, if the release is scaled back or delayed or if delivered volumes are less than those mentioned by the White House, consultancy Eurasia Group said in a note.

Traders are waiting to see how much oil the IEA countries agree to release but do not expect it to have a long-term effect on the market.

“Its impact will be limited as it is unlikely to be anything near the scale of the US announcement,” said Oanda senior analyst Jeffrey Halley.

ANZ Research analysts said in a note: “Previous releases from the SPR have taken time to reach the market and have had little impact on prices.”

While Mr Biden called for US producers to step up output, ANZ analysts said the massive SPR release could actually backfire and discourage producers from drilling more.

“The scale of the proposed release is large enough to mostly, or even completely, fill the supply deficit in the crude oil market for a period,” Commonwealth Bank commodities analyst Tobin Gorey said.

“The action would likely cap prices for that period, after which the market would then be relying on Opec+ to increase production.”

The Organisation of Petroleum Exporting Countries and its allies including Russia, together called Opec+, stuck to plans to add a modest 432,000 barrels per day of supply in May, despite Western pressure on Saudi Arabia and the United Arab Emirates to use their spare capacity to boost output further.

China’s widening lockdowns are contributing to concerns of falling fuel demand, said CMC Markets analyst Tina Teng.

Late on Thursday, the commercial hub of Shanghai extended a lockdown in its eastern districts, while the western portions shut down as scheduled.