OIL FUTURES: Crude holds lower as US announces 1 million b/d petroleum reserve release

Crude prices stayed lower midmorning March 31, as the White House announced it will release up to a third of the nation's Strategic Petroleum Reserve over the next six months in a bid to combat high energy prices.

At 1526 GMT, NYMEX May WTI was down $4.26 at $103.56/b and ICE May Brent traded $5.07 lower at $108.38/b.

US President Joe Biden will authorize the release of up to 1 million b/d of SPR volumes for a period of up to six months, according to a March 31 White House statement. The aggregate release would be the largest in US history, according to a White House fact sheet, and will serve as a bridge to add supply until domestic production levels ramp up later in the year.

NYEMX April RBOB was down 12.47 cents at $3.2003/gal and April ULSD was 7.05 cents lower at $3.7380/gal.

Proceeds from the sale will be used to restock the SPR in future years, providing forward demand that will spur increased domestic energy production, the White House said.

Some market participants questioned whether this would in fact have a lasting impact.

"If 180 million barrels are released over the next six months and we have an extra 1 million barrels a day it still wouldn't solve things, just postpone them. There needs to be an increase in production to sustainably drive prices lower for longer," said Michael Poulsen from Global Risk Management.

SPR volumes have been steadily declining since September, falling 53 million barrels over the past 29 weeks to 568.32 million barrels during the week ended March 25, US Energy Information Administration data showed March 30. This has left inventories in the reserve at the lowest level since May 2002.

Crude futures initially dropped following the announcement, but quickly stabilized. Reports of the SPR sale had been telegraphed late March 30 and the market was already trading lower in anticipation of an official statement March 31, softening the price reaction.

"President Biden is feeling the pressure from Americans as inflation is getting uglier and this speculated release will show the public he is trying to get gas prices down with the exception of encouraging more drilling," OANDA senior market analyst Ed Moya said in a note. "This proposed record SPR release could have also been a chess move to try to pressure OPEC+ into delivering more output, but obviously had no impact."

OPEC and its allies approved another modest oil production increase March 31, saying it saw no need to respond to oil disruptions from the Ukraine war being waged by key member Russia, despite pressure from major consuming economies for more supplies.

The OPEC+ agreement calls on the 23-country producer alliance to boost output by 432,000 b/d in May.

That is a slight increase from the previous monthly increases of 400,000 b/d, with a slight readjustment of quotas, but still far short of what analysts at S&P Global Commodity Insights forecast could be 2.8 million b/d of Russian crude shut-ins from late April through to the end of 2022.