Ahead what was looking like a standard meeting of the OPEC+ group on Thursday with an expected lift in its production cap of 400,000 barrels a day in May, along comes the Biden administration and crunches oil prices by more than $US5 a barrel with a proposal to release 180 million barrels of oil from its strategic reserve.
News of the idea leaked Thursday afternoon in Asia and saw US crude slump sharply, followed by Brent prices.
Brent futures for May fell $US5.47, or 4.8%, to $US107.98 a barrel in late Asian/early European dealings.
That May contract expired on Thursday and the new front month contract – June – lost $US5.26 to $US106.18.
US West Texas Intermediate futures for May delivery fell $US6.23, or 5.8%, to $US101.59 a barrel after earlier slipping to a low of $US100.85.
American media outlets said President Joe Biden would detail the proposal later on Thursday.
The New York Times reported that the President’s schedule for Thursday said he would deliver remarks Thursday afternoon on the administration’s “actions to reduce the impact of Putin’s price hike on energy prices and lower gas prices at the pump for American families.”
Administration ‘sources’ briefed that it would be about a reduction in the US strategic oil reserve.
Some media reports said the US release would be 1 million barrels a day for 180 days – or around six months. If the OPEC+ meeting goes ahead with the 400,000 barrels a day cut, by the start of May 30 million extra barrels from the US would be in the market, as well as the extra 400,000 barrels a day from OPEC+ that was agreed to at its end of February meeting for April.
A similar cut for May would see nearly 2 million extra barrels of crude on world markets by the start of May – and at the same time the strength of demand being pressured by the latest Covid surge in China which has clearly slowed the pace of activity across that economy.
The US move though could be co-ordinated with other countries with International Energy Agency (IEA) member countries are set to meet on Friday might, Sydney time to decide on a collective oil release, a spokesperson for New Zealand’s energy minister said on Thursday (according to Reuters).
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 United States announced a plan to release 50 million barrels from the strategic reserve, mostly through exchanges where the buyer agrees to replace the oil later.
The release comes as the Energy Information Administration (EIA) revealed that US commercial oil inventories fell by 3.4 million barrels in the week to March 25, higher than forecasts of a 1 million barrel drop.
The EIA also reported the first rise in US daily production – up 100,000 barrels to 11.7 million barrels a day – for more than two months as oil companies have boosted rig use in the same period.
