DTN Oil

WASHINGTON (DTN) -- Reversing Wednesday's advance, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell more than 5% Thursday morning in reaction to reports suggesting the Biden administration is considering the release of up to 180 million bbl of crude oil from the Strategic Petroleum Reserve over the next six months in a bid to lower oil prices that rallied to 14-year highs in the aftermath of the invasion of Ukraine.

U.S. President Joe Biden's planned SPR release would be the largest draw from U.S. emergency reserves in history, with the plan to draw 1 million bpd of SPR crude to add to global oil supply. The SPR currently holds roughly 568 million bbl of crude oil.

While details are not fully known, Washington is reportedly coordinating the measure with other countries that are part of the Organization for Economic Cooperation and Development, including Japan and the United Kingdom to join the effort.

The United States and allies have sought to bring down prices with strategic reserves previously, but "the cooling effect" proved to be short-lived. Members of the OECD group agreed to release 60 million bbl on March 1, but Brent crude rose more than 7% that day.

Goldman Sachs commodity research said this morning the reported SPR release might be different due to the sheer size of that release that would help the global market to rebalance in 2022 but would not resolve its structural deficit. The market's deficit is estimated between 1.5 and 2 million bpd currently -- a trend that is likely to accelerate due to the partial loss of Russian oil exports.

For reference, International Energy Agency forecasted Russian oil production could plunge by 3 million bpd beginning in April as Western traders and banks shun from dealing with Russian oil cargoes. Russian pipeline operator Transneft has reportedly restricted oil intake into its network amid rapid buildup in storage levels. According to various estimates, Russian oil flows have fallen by 1.5 million bpd since the Feb. 24th invasion of Ukraine.

Further weighing on the complex, weekly U.S. inventory data released Wednesday showed demand for motor gasoline eroded for the third consecutive week through March 25 at a time when it normally begins to rise from the January-February doldrums. Last week gasoline demand in the U.S. dropped to the lowest weekly rate since mid-January at 8.499 million bpd, bringing the four-week average some 5% below the comparable four-week average in 2019.

The data might reveal early signs of demand destruction as high pump prices appear to be deterring driving activity. AAA reported the national average for a gallon of gasoline was $4.24 on Tuesday, which is 63cts more than a month ago and $1.38 more than a year ago.

The same trend can be found in U.S. diesel demand that declined for the second consecutive week through March 25, falling 712,000 bpd from the previous week to 3.804 million bpd. It's worth noting diesel demand closely correlates with U.S. economic activity, consumer purchases, and international trade. It is also possible that supply chain issues related to Russia's invasion of Ukraine and COVID-related lockdowns in China could already be impacting domestic freight activity and concomitantly diesel demand.

In early trade, NYMEX May West Texas Intermediate futures plunged nearly $6 to $101.85 bbl, and ICE May Brent futures fell a like amount to $107.55 bbl ahead of expiration this afternoon. June Brent futures narrowed its discount to the May contract to $1.40 bbl in the backwardated market. NYMEX April ULSD futures plummeted 13.35 cents to $3.6750 gallon, but still holds a wide 33.7 cents gallon premium over the May contract ahead of its expiration Thursday afternoon. April RBOB futures declined to $3.1925 gallon, down about 13.25 cents from the prior session ahead of expiration Thursday afternoon, with the May contract trading at a 2.8-cent discount to the expiring contract.

Liubov Georges can be reached at liubov.georges@dtn.com