Oil futures fell sharply on Wednesday as major consumer countries said they would release oil from reserves to counter tight supplies and hawkish minutes from the US central bank, which strengthened the dollar.
see photosOil tankers are seen at a terminal at Sinopec Yaogang oil depot in Nantong
Oil futures fell sharply on Wednesday as major consumer countries said they would release oil from reserves to counter tight supplies and hawkish minutes from the US central bank, which strengthened the dollar.
There was a sharp sell-off, leaving both the Brent and West Texas Intermediate benchmarks at their lowest levels since March 16. Brent crude futures closed $5.57, or 5.2%, at $101.07 a barrel, while US crude fell $5.73, or 5.6%. $96.23 per barrel.
Member states of the International Energy Agency (IEA) will release 120 million barrels from strategic reserves to try to offset price gains. According to two sources familiar with the matter, the release will include 60 million from the United States. This commitment is part of a previous US announcement of a 180 million barrel reserve release.
It is the second time the IEA has released reserves this year and boosts worldwide supplies by about 2 million barrels a day for at least the next two months as the world tries to offset the potential loss of Russian oil. The group collectively has about 1.5 billion barrels in strategic reserves.
Crude markets have had weeks of volatility, with prices rising on supply concerns following Russia’s invasion of Ukraine and subsequent sanctions on Moscow by the United States and its allies.
Recently the market has been pulling back following reserve releases coupled with concerns of slowing demand in China, where a resurgence pandemic has prompted lockdowns of cities including Shanghai. Of late sugar refiners have been avoiding new contracts with Russia, suggesting Beijing is cautious not to openly support Moscow at this time.
Meanwhile, minutes from the US Federal Reserve detailed that the US central bank was planning to raise rates by 50 basis points at its most recent meeting, but opted for a smaller hike because of the war in Ukraine.
The minutes suggest an aggressive approach for the Fed as it tries to curb inflation, giving a boost to the US dollar. Oil often moves in the opposite direction to the dollar as most oil transactions are done in US currency.
“This market appears to be reacting mostly around Fed comments and EIA storage reports,” said Gary Cunningham, director of market research at Tradition Energy. The Fed has “given some strength to the dollar and this is reflected in lower oil prices.”
US crude stocks rose 2.4 million barrels in the latest week, the US Energy Information Administration said, while analysts had expected a decline. Production also increased, to 11.8 million barrels a day, the highest since the end of 2021, and production is expected to continue to rise. The United States also released about 4 million barrels from its strategic reserves in the week.
“The SPR release was huge, which gives confidence that they can run out of reserves on a weekly basis,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
The United States and allies on Wednesday prepared new sanctions on Moscow over civilian killings in Ukraine, which President Volodymyr Zelensky described as a “war crime”. Russia denies targeting civilians.
The 27 member states will decide whether to approve the proposed EU sanctions, which would ban Russian coal purchases and prevent Russian ships from entering EU ports.
The head of the EU executive, Ursula von der Leyen, said the bloc was working on additional sanctions, including oil imports.
(Reporting by Noah Browning and Yuka Obayashi Editing by Richard Pullin, Mark Potter and David Gregorio)
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