Crude Oil Prices Rise as Strategic Reserves Release Fears Wane

By Adedapo Adesanya

The crude oil market on Friday shook off the initial concerns nursed after member states of the International Energy Agency (IEA) announced plans to release crude from their strategic stocks.

The market had reacted bearishly after the countries promised to release 60 million barrels over the next six months, with the United States matching that amount as part of its 180 million barrel release announced in March.

The collective release of 180 million barrels from the United States and IEA member countries has flattened oil futures’ forwards curve, easing fears of unprecedented tightness in the markets.

The Biden Administration’s pledge to release 180 million barrels over the next six months exceeds the scope of IEA releases, however, oddly enough one-third of the US SPR drawdown will be made under the international organisation.

Analysts also note that release could also discourage producers, including the Organisation of the Petroleum Exporting Countries (OPEC) and US shale producers, from accelerating output increases even with oil prices around $100 a barrel.

There are also reservations about whether the release will address the shortfall in Russian crude which is about one million barrels per day.

Russia’s production of oil and gas condensate fell to 10.52 million barrels per day for April 1-6 from a March average of 11.01 million barrels per day.

The US Congress has voted to ban Russian oil while the European Union is considering a ban but amid the sabotage of Russian oil by Western nations, China, its unwavering ally, continues to buy its oil.

On the back of these, the Brent crude gained $2.19 or 2.18 per cent to trade at $102.80 per barrel, while the United States West Texas Intermediate (WTI) crude rose by $2.13 or 2.22 per cent to $98.16 per barrel.

Demand uncertainties kept a lid on prices Friday after Shanghai extended its lockdown to contend with fast-rising COVID-19 infections.

Further pressure came from the strengthening US Dollar, after signals that the U.S. Federal Reserve could raise the federal funds rate another 3 percentage points by the end of the year.

Despite the gains yesterday, both benchmarks fell for the second consecutive week, with Brent recording a 3.6 per cent slide and WTI depreciating by 3 per cent.