Oil fell with President Joe Biden’s order to release roughly a million barrels a day from crude reserves in an effort to tame rising energy costs. 

Futures in New York fell to US$100 a barrel after the U.S. said it will release the biggest amount yet of crude from its strategic reserves, potentially totaling as much as 180 million barrels. The goal of Biden’s plan is to create a bridge for U.S. supply until the fall, when domestic production is anticipated to increase, the White House said. 

Oil posted a monthly gain of 4.8 per cent despite the daily drop as Russia’s war in Ukraine rattled global markets. The invasion has fanned inflation, driving up the cost of everything from fuels to food. Additionally the loss of Russian flows, around 3 million in exports, is stretching an already tight market.

President Joe Biden has already ordered two releases of oil from U.S. reserves in the past six months, but that’s done little to tame rampant prices. He’s also called on OPEC+ to raise oil output faster, but Saudi Arabia and the United Arab Emirates said this week that the U.S. must trust the group’s supply strategy. The U.S. plans are accompanied by a diplomatic push for the International Energy Agency to coordinate a global release. 

A large release from America “would reduce the amount of necessary price-induced demand destruction,” Goldman Sachs Group Inc. analyst Damien Courvalin wrote in a note to clients. “This would remain, however, a release of oil inventories, not a persistent source of supply for coming years.”

Prices

  • West Texas Intermediate for May delivery fell US$7.54 to settle at US$100.28 a barrel in New York.
  • Brent for May settlement, which expired Thursday, slid US$5.54 to US$107.91 a barre
    • The more-active June contract dropped US$6.73 to US$104.71 a barrel.

The Organization of Petroleum Exporting Countries and its partners ratified the 432,000 barrel-a-day supply increase scheduled for May at a meeting on Thursday. The alliance beat its own record for brevity, wrapping up the online gathering in 12 minutes.

Despite lingering questions on whether U.S. production increases can satisfy the market if Russian energy exports remain constrained, the U.S. oil futures curve is already starting to weaken on the expected wave of SPR supplies. West Texas Intermediate crude futures for immediately delivery were trading more than US$5 a barrel above the next-month price a few weeks ago. Now, that gap narrowed to as little as US$1.63 after news of the release spread through the market. 

On the demand side, the market is facing possible weakness as China tackles a virus resurgence. The nation has initiated a string of lockdowns to curb its spread, including in Shanghai, which is starting to affect the economy -- China’s manufacturing activity contracted this month.

Related coverage:

  • The U.S. ban on Russian petroleum imports is starting to bite, as an expanding glut of heavy fuel oil threatens to force some of the country’s refiners to slow their operations and consume less crude.
  • Oil dropped by more than US$5 a barrel in a matter of minutes after a report that the Biden administration is considering releasing about 1 million barrels a day from its strategic reserves for several months.
  • Russia is offering India steep discounts on the direct sale of oil as mounting international pressure lowers the appetite for its barrels elsewhere following the invasion of Ukraine, according to people with knowledge of the matter.