SINGAPORE (REUTERS) - Oil prices dived more than US$5 a barrel on Thursday (March 31) on news that the United States is considering the release of up to 180 million barrels from its Strategic Petroleum Reserve (SPR) over several months to calm soaring crude prices.
Brent futures fell US$4.60, or 4 per cent, to US$108.85 a barrel at 4.39pm Singapore time, while US West Texas Intermediate dropped US$4.99, or 4.6 per cent, to US$102.83.
US President Joe Biden will give remarks later on Thursday announcing the plan, sources said, which is aimed at lowering petrol prices that have risen to records following Russia’s invasion of Ukraine.
At 180 million barrels, the release would be the largest in the near 50-year history of the SPR but equivalent to just about two days of global demand. It would ease but not resolve oil’s structural deficit, said Goldman Sachs.
“In fact, lower prices in 2022 would support oil demand while slowing the acceleration in shale (oil) production, leaving for now a deficit in 2023 as well as the likely requirement to refill the SPR.”
Goldman added that adjustments made for the SPR release and delays in the return of Iranian supply to the global oil market lowers their Brent crude price forecasts for the second half of this year by $15 to $120 a barrel.
Mr Warren Patterson, head of commodities strategy at ING, said a key question is whether this volume would be part of a wider coordinated release.
The International Energy Agency has called an emergency ministerial meeting on Friday to discuss oil supply, a spokesman for Australian Energy Minister Angus Taylor said on Thursday.
News of the potential US oil release overshadowed a meeting set for later on Thursday by the Organisation of Petroleum Exporting Countries and its allies including Russia. The group, known as Opec+, is expected to stick to its existing deal to gradually increase oil production.
Oil settled up around 3 per cent on Wednesday, driven by supply concerns as peace talks to end the war between Ukraine and Russia, which calls its actions a “special operation”, have stalled.
Russia is the world’s second-largest oil exporter and sanctions imposed as punishment for the invasion have disrupted flows from the country, driving prices higher.
In early March, the Biden administration said it would sell 30 million barrels from the strategic reserves as part of a global release of 60 million barrels to lower prices.
In November, the US announced a plan to release 50 million barrels from the SPR, mostly through exchanges where the buyer agrees to replace the oil later.
“I guess we need to also see if this would be a straightforward release or an exchange,” said Mr Patterson.
Some analysts remain sceptical about the impact of the oil reserve release.
“It’s a sentiment shock but if recent history suggests anything, the reserve release will only be a temporary fix and akin to putting a Band-Aid on a broken leg,” said Mr Stephen Innes, managing partner at SPI Asset Management.
