Oil slid below US$100 a barrel and is heading for the biggest weekly loss in almost two years after the Biden administration ordered an unprecedented release of strategic US reserves to tame rampant prices.
West Texas Intermediate futures dropped 0.8% in early trading Friday, and are down almost 13% for the week. The US plans to release 1 million barrels a day for six months, although analysts warned any reprieve would be short-lived. The news filtered into the market early on Thursday, just before the OPEC+ alliance gathered to ratify a modest increase in supply for May.
Russia’s war in Ukraine has roiled global commodity markets and driven up the price of everything from food to fuels, challenging governments seeking to encourage economic growth after the pandemic. It’s led to tumultuous trading in the oil market, with wild swings during sessions throughout March.
President Joe Biden blamed a spike in gasoline prices this year on his Russian counterpart Vladimir Putin and the invasion of Ukraine, calling it “Putin’s price hike.” He also criticized US oil companies that have been reluctant to boost production. The cost of retail gasoline at the pump was already high prior to the invasion, but the war has turbocharged prices worldwide.
The US has already tapped its reserves twice in the past six months but it’s done little to cool prices. As much as 180 million barrels may be released this time, and Biden said he expects allies to release 30 million to 50 million more barrels from their own reserves. American physical crude prices tumbled.
Goldman Sachs Group Inc. cut its forecast for Brent in the second half by US$10 a barrel to US$125 following news of the US release. The bank said in a note that the decision won’t resolve “oil’s structural deficit.”
The market also faced pressure this week from concerns about Chinese demand as the world’s biggest oil importer implements a series of lockdowns to curb a virus resurgence. Those curbs are starting to have an impact on the economy, with manufacturing activity contracting in March.
