Oil falls as US, UK plan oil reserve release

Crude prices fell by $2 a barrel on Thursday after Reuters reported that the United States and Britain were preparing a release from strategic oil reserves this year. Two UK sources told Reuters that Britain has agreed to cooperate with the United States in releasing reserves, but volumes and exact timelines have not yet been determined.
Britain expects to receive a formal request from US officials "shortly," the UK sources said, and releases would seek to boost supplies by summertime. US White House spokesman Jay Carney said there has been no agreement made to tap strategic reserves. Oil prices pared sharp initial losses of more than $3 after the report, with benchmark Brent for May delivery settling down $1.98 at $122.60 a barrel. Brent for April delivery, which expired on Thursday, fell $1.42 a barrel to $123.55. US crude futures fell 32 cents to $105.11 per barrel.
Oil traders said they were waiting for more details on any release from emergency reserves. "It all depends on how much they are going to release," said analyst Chris Dillman at Tradition Energy in Connecticut. Potential releases were discussed at a meeting on Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, Reuters reported early Thursday.
Cameron later told reporters that releasing oil reserves is "worth looking at," but said no decision has been made. Tapping emergency reserves could help to stem surging fuel prices and gird against any potential supply shortfall from sanctions-struck Iran. The use of strategic reserves by consumer nations would follow last summer's concerted 60-million-barrel release by the 28-member International Energy Agency (IEA) countries, in a bid to fill the supply gap caused by Libya's civil war, which slashed exports from the country.
The Paris-based IEA said last month it saw no reason to resort to SPR releases in the near future. Last year's move was unanimously agreed among IEA members, but countries including Germany and Italy have voiced reluctance to tap reserves again. "We saw an initial sharp drop and collapse but prices seem to have recovered," said analyst Carsten Fritsch at Commerzbank.
"For the moment it's the US and UK alone; no other country seems willing to join so the market wonders if the impact of this will be lasting." The Obama administration could be tempted to tap the 727-million-barrel US SPR as retail gasoline prices have surged to their highest level ever for mid-March, near $3.80 a gallon, drawing consumer ire during a presidential election year.
"We'd both like to see global oil prices at a lower level than they are," Cameron told students and reporters at New York University. But SPR use would surely draw criticism from those who feel there is no major supply disruption underway to warrant it. "The government is playing retail politics with energy and not solving the underlying problem. It does more damage than good," said John Hoffmeister, former president of Shell Oil, speaking on CNBC. US officials have been weighing policy measures to keep high fuel prices from derailing economic growth.