LONDON: Oil prices tumbled on Thursday on reports that the United States is considering tapping reserves to combat a supply crisis sparked by the Ukraine war.
London’s Brent crude and New York’s WTI managed to pull back slightly in mid afternoon trading but were both still more than four percent lower at prices well above $100 a barrel.
Crude prices have spiked in recent weeks over fears of a major supply shortfall after Russia – the world’s second biggest exporter of oil after Saudi Arabia – invaded Ukraine on February 24.
Ignoring Western pressure to significantly boost production in order to ease prices, the OPEC group of oil producing countries and its Russia-led allies agreed another modest oil output increase on Thursday.
The 13 members of the Saudi-led Organization of the Petroleum Exporting Countries and their 10 partners backed an increase of 432,000 barrels per day in May, marginally higher than in previous months.
But attention was on the US plan.
“Oil prices are under considerable pressure… on news that the US government is planning a massive release of oil,” said Commerzbank analyst Carsten Fritsch.
US President Joe Biden is reportedly looking at releasing a million barrels a day for several months – totalling up to 180 million – as he tries to temper a conflict-fuelled price surge.
Elsewhere, stock markets fell after Russia poured cold water on hopes that ceasefire talks with Ukraine were progressing, leaving the prospect of a protracted war.
Energy majors, like Britain’s BP and France’s TotalEnergies, saw their share prices drop as lower crude prices bites into revenues and profits.
‘Tinkering at margins’
Edward Gardner, commodities economist at Capital Economics, questioned whether OPEC+ – as the alliance of 23 countries is called – will be able to fully meet its production quotas in the months ahead.
One reason to doubt it, he said, was that production in Russia was more likely to decrease than increase this year due to Western sanctions reducing demand for its exports.
OPEC+ was already failing to hit its quotas before the Ukraine crisis, he added.
“With that in mind, it is no wonder that the West is considering additional releases of stocks from its strategic reserves,” Gardner said.
But analysts have also downplayed the impact of the possible release in US reserves.
“A speculated release of one million barrels of oil per day over the coming months has to be seen in the context of total global output of around 100 million barrels per day,” AJ Bell analyst Russ Mould noted.
“Really this is tinkering at the margins. What might put more of a brake on prices is action by OPEC.”
The Ukraine war has already sent shockwaves through the world economy, with growth forecasts this year being lowered across the board.
The European development bank, EBRD, forecast gross domestic product in Russia and Ukraine would shrink 10 percent and 20 percent respectively this year.
London stocks dipped on Thursday as data showed that the UK economy rebounded slightly less than initially thought last year and ahead of a far tougher 2022 on fallout from the Ukraine war and rampant inflation.
Asian equities fell after three days of healthy gains.
Adding to selling pressure was data showing signs of a further slowdown in China’s manufacturing sector caused by Covid lockdowns.
Key figures around 1415 GMT
Brent North Sea crude: DOWN 4.5 percent at $108.30 per barrel
West Texas Intermediate: DOWN 4.4 percent at $103.38 per barrel
New York - DOW: DOWN 0.5 percent at 35,041.50 points
London - FTSE 100: DOWN 0.6 percent at 7,535.05
Frankfurt - DAX: DOWN 1.1 percent at 14,449.13
Paris - CAC 40: DOWN 1.0 percent at 6,674.61
EURO STOXX 50: DOWN 1.1 percent at 3,916.14
Tokyo - Nikkei 225: DOWN 0.7 percent at 27,821.43 (close)
Hong Kong - Hang Seng Index: DOWN 1.1 percent at 21,996.85 (close)
Shanghai - Composite: DOWN 0.4 percent at 3,252.20 (close)
Euro/dollar: DOWN at $1.1093 from $1.1159 late Wednesday
Pound/dollar: UNCHANGED at $1.3134 from $1.3134
Euro/pound: DOWN at 84.45 pence from 84.96 pence
Dollar/yen: DOWN at 121.51 yen from 121.83 yen
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