Oil prices dived on Thursday as the United States is considering the release of up to 180 million barrels from its strategic petroleum reserve (SPR) over several months to calm soaring crude prices.
U.S. West Texas Intermediate futures for May delivery fell $2.90, or 2.70%, to $104.66 a barrel after earlier slipping to a low of $100.85.
U.S. President Biden will give remarks later on Thursday announcing the plan, three sources said, aimed at lowering gasoline prices that have risen to records following Russia’s invasion of Ukraine.
“If it turns out to be as much as that, it would be significant and so would certainly help to a certain extent to fill the shortfall, but not all of it,” said Warren Patterson, head of commodities strategy at ING, referring to the 180 million barrels figure.
“Another key question is whether this volume would be part of a wider coordinated release.”
The International Energy Agency has called an emergency ministerial meeting for Friday to discuss oil supply, a spokesperson for Angus Taylor, the Australian energy Minister, said on Thursday.
News of the potential U.S. oil release overshadowed a meeting set for later on Thursday between the Organization of the Petroleum Exporting Countries (OPEC) and their allies including Russia. The group known as OPEC+ is expected to stick to its existing deal to gradually increase oil production.
Oil settled up around 3% on Wednesday, driven by supply concerns as peace talks to end the war between Russia, which calls its actions a “special operation”, and Ukraine have stalled.
Russia is the world’s second-largest oil exporter and sanctions imposed as punishment for the invasion have disrupted flows from the country, driving prices higher.
In early March, the Biden administration said it would sell 30 million barrels from the strategic reserves as part of a global release of 60 million barrels to lower prices.
In November, the U.S. announced a plan to release 50 million barrels from the SPR, mostly through exchanges where the buyer agrees to replace the oil later.
“I guess we need to also see if this would be a straightforward release or an exchange,” ING’s Patterson said.
Some analysts remain sceptical about the impact of oil reserves release.
“It’s a sentiment shock, but if recent history suggests anything the reserve release will only be a temporary fix and akin to putting a band-aid on a broken leg,” said Stephen Innes, managing partner at SPI Asset Management.
The release comes as U.S. commercial oil inventories fell by 3.4 million barrels in the week to March 25, surpassing forecasts of a 1 million barrel drop. At the same time, implied demand for gasoline and distillates declined.
The slower demand came as U.S. production rose by 100,000 barrels per day (bpd) to 11.7 million bpd after stagnating at 11.6 million bpd since early February.