Oil sheds bulk of invasion-driven gains on SPR sales, virus, Fed

Oil headed for a back-to-back weekly retreat on plans for massive stockpile releases, a demand-sapping virus outbreak in top importer China and a hawkish turn from the U.S. Federal Reserve.

Oil headed for a back-to-back weekly retreat on plans for massive stockpile releases, a demand-sapping virus outbreak in top importer China and a hawkish turn from the U.S. Federal Reserve. 

West Texas Intermediate hovered around US$97, with prices about 2.3 per cent lower this week. The recent drop means the U.S. benchmark has now lost most of the gains seen since Russia invaded Ukraine in late February.

Alarmed by the surge in energy costs spurred by Moscow’s assault, Washington and allies have announced plans to sell almost a quarter-of-a-billion barrels from strategic petroleum reserves. With the move supported by France, the U.K. and others, that’s prompted a collapse in once-elevated time spreads.

Measured global stockpile releases can be used “as an opportunity to sanction Russian crude oil explicitly by the EU, U.S., Japan, and South Korea, without blowing up the oil price, thus leading to actual economic pain for Russia,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. Flooding the market with releases to crash the price “is, of course, another option, though a very unpredictable one,” he said.

Crude prices -- which remain more than a quarter higher year-to-date -- also were hurt this month after China ordered a series of lockdowns in key urban centers, including Shanghai, to quell a coronavirus outbreak. At the same time, plans by the Fed for an aggressive tightening of U.S. monetary policy to combat inflation have blunted demand for risk assets and boosted the dollar.