Crude oil futures rise on fresh buying after IEA news sparks overnight plunge

Crude oil futures were higher in mid-morning Asian trade April 7 as investors returned to buy the dips after news of IEA members agreeing to a 120 million barrels oil reserve release sent oil prices tumbling overnight.

At 10:15 am Singapore time (0215 GMT), the ICE June Brent futures contract was up $1.61/b (1.59%) from the previous close at $102.68/b, while the NYMEX May light sweet crude contract rose $1.43/b (1.49%) to $97.66/b.

IEA member countries agreed to release 120 million barrels of oil from storage, which includes 60 million barrels already pledged from the US, as part of its overall draw from its strategic petroleum reserve, IEA Executive Director Fatih Birol tweeted April 6.

This comes after the US pledged to tap 180 million barrels of oil last week, effectively releasing 1 million b/d for six months from May, in a bid to alleviate market concerns over potential shortages from a drop in Russian oil exports.

The reports sent ICE Brent and NYMEX crashing by more than 5% on the day, effectively erasing all of its gains for the week.

"In addition to the enormous global reserves release, demand destruction and recession are currently the only price-lowering mechanism in a world devoid of inventory buffers," said SPI Asset Management Managing Partner Stephen Innes in an April 7 note.

"Some folks checked one or both of those boxes overnight with recessionary smoke signals dotting the horizon," he added.

Financial markets have been on shaky ground this week as US Federal Reserve officials called for an aggressive tightening of monetary policy in the months ahead to waylay rising inflation. This has stirred fears of a hard landing that could send the economy into recession.

The latest minutes of the Federal Reserve April 6 showed several Fed officials supporting raising interest rates by half a percentage point at least once in the future, while also reducing its swollen balance sheet by $95 billion per month.

"No market economist is calling for a recession with too much momentum in the economy, but the counter to that is it does not mean some of its makings cannot start to show up beforehand," said Innes.

Putting further pressure on prices, US crude oil stocks rose 2.42 million barrels in the week ended April 1 to 412.37 million barrels, as US crude output climbed 100,000 b/d to 11.8 million b/d, the highest since December 2021, US Energy Information Administration data showed April 6.

Total US gasoline stocks meanwhile, fell 2.04 million barrels to 236.79 million while distillate stocks edged 770,000 barrels higher to 114.3 million barrels, the EIA said.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia April 7 from the previous close.

The June Dubai swap was pegged at $95.77/b at 10 am Singapore time (0200 GMT), down $3.80/b (3.82%) from the April 6 Asian market close.

The May-June Dubai swap intermonth spread was pegged at $1.04/b at 10 am, down 52 cents/b over the same period, and the June-July intermonth spread was pegged at 65 cents/b, down 28 cents/b.

The June Brent/Dubai EFS was pegged at $6.94/b, down 99 cents/b.