OIL FUTURES: US SPR release, OPEC+ output hike send crude sharply lower

Crude oil futures settled sharply lower March 31 after the White House announced it will release up to one-third of the nation's Strategic Petroleum Reserve over the next six months in a bid to combat high energy prices.

NYMEX May WTI settled down $7.54 at $100.28/b and ICE May Brent declined $5.54 to $107.91/b.

The Biden administration will release an unprecedented 1 million b/d from the US Strategic Petroleum Reserve for the next six months as part of efforts to rein in gasoline prices that have soared following Russia's invasion of Ukraine, the White House said March 31.

Crude prices, which had settled higher the session prior, tumbled overnight amid early reports of the SPR release. The early telegraphing of the move served to mitigate immediate price reaction when the White House officially announced the plan March 31, but price declines accelerated in afternoon trading and futures settled just off-session lows.

Front-month WTI briefly traded below $100/b for the second time this week, however, again the contract found support at that level and settled above it. Still, the front-month Brent and WTI contracts settled at the lowest since mid-March.

NYMEX April RBOB gave up 13.54 cents to finish at $3.1896/gal and April ULSD declined 11.73 cents to $3.6912/gal.

Analysts questioned the longer-term impact of the SPR release.

"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.

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.

"The additional SPR release won't by itself 'fix' the problem of lost Russian supply, but it will help," said Aaron Brady, executive director of global oil research for S&P Global Commodity Insights, "1 million b/d of additional supply will make a material difference in global supply-demand balances."

Edward Moya, a senior market analyst for OANDA, said the SPR decision may prevent $150/b oil, but the impacts likely will not be significant, especially not as significant as US gasoline consumers desire.

"I still think we should get used to $100/b oil for the time being as long as these geopolitical risks remain," Moya said. "This is a Band-Aid solution for a major wound. It's really ammunition you really should have saved for later if it becomes really clear we're not going to see a de-escalation"

The underlying crude supply picture remains very tight with low inventories and spare global capacity at just 1.4 million b/d by June, according to S&P Global data.

S&P Global has lowered its 2022 Russian crude oil forecast by 2.1 million b/d with the assumption that export dislocations from sanctions and buyer aversion will trigger shut-ins of 2.8 million b/d from late April through the end of 2022.

OPEC+ sticks to planned output hike

Meanwhile, 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 forecast could be 2.8 million b/d of Russian crude shut-ins from late April through to the end of 2022.