Futures Movers: Oil prices drop on largest-ever release from U.S. crude reserves, as OPEC+ sticks to planned output boost

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Oil prices slumped early Thursday, as traders absorbed reports that the U.S. is planning a hefty release of crude reserves, while the Organization of the Petroleum Exporting Countries and its allies stuck with a previously agreed plan to raise output in May.

Price action

West Texas Intermediate crude for May delivery 
CL.1,
-5.50%

CL00,
-5.50%

CLK22,
-5.50%

fell $6.21, or 5.7%, to $101.62 a barrel. The contract climbed 3.4% on Wednesday to settle at $107.82 a barrel on the New York Mercantile Exchange.

May Brent crude 
BRN00,
-4.60%

BRNK22,
-5.11%
,
 the global benchmark, fell $6.13, or 5.4%, to $105.38 a barrel, a day after rising 2.9% to $113.45 a barrel on ICE Futures Europe.

May natural gas 
NGK22,
+3.25%

fell 1.9% to $5.50 per million British thermal units.

April gasoline 
RBJ22,
-2.97%

slumped 4.2% to $3.157 a gallon, following a 3.8% climb to $3.325 a gallon a day earlier. April heating oil 
HOJ22,
-3.11%

 fell 3.4% to $3.338 a gallon, after a 2.5% gain to $3.809 a gallon.

Market drivers

President Joe Biden is planning to order up to 1 million barrels of oil per day released from the nation’s strategic petroleum reserve (SPR), the Associated Press reported late Wednesday, citing sources.

That announcement may come Thursday, when Biden is expected to make remarks about his administration’s plans to battle higher gasoline prices, and help counter the loss of Russian oil on the market after sanctions were imposed a month ago. The report said any U.S. SPR release could last for months.

The release could help the market rebalance in 2022, and cut back on the amount of demand destruction needed, said a team of commodity analysts at Goldman Sachs led by Damien Courvalin, in a note on Thursday.

However, that extra oil “would not resolve the structural supply deficit, years in the making. In fact, lower prices in 2022 would support oil demand while slowing the acceleration in shale production, leaving for now a deficit in 2023 as well as the likely requirement to refill the SPR,” said Goldman analysts.

Among the bullish risks, they see potential logistical bottlenecks to any U.S. SPR release, such as congestion on the Gulf Coast that might slow shale production. Also OPEC+ may not accelerate its planned quota increase to compensate for falling Russia and Kazakhstan exports. For 2023, Goldman sees prices $5 above the $110 a barrel forecast, while this year could see prices back to $125 per barrel in the second half.

Indeed, OPEC+ held the line in its Thursday meeting, rubber-stamping a previously agreed plan that will lift its production target by 432,000 barrels a day in May, according to news reports. OPEC+ has resisted calls by the Biden administration and other energy-consuming countries to more rapidly boost output.

Oil prices rose Wednesday amid confusing signals about progress between Russian and Ukraine negotiators, as the fighting dragged on in the conflict that began more than a month ago.

“The Kremlin reported no breakthrough in peace talks, while Ukraine says Russia is deploying reinforcements, dashing hopes for an end to the war,” said Stephen Innes, managing partner at SPI Asset Management, in a note to clients.

War in Ukraine:  Zelenskyy says defense of his country is at a ‘turning point’ as Russian attacks intensify

Elsewhere, Russia is reportedly offering hefty discounts of its oil to India, amid sagging demand due to those sanctions, Bloomberg reported on Thursday, citing sources.

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