DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell more than 5% on Wednesday after federal data reported a bearish rise in U.S. commercial oil inventories along with higher domestic production for the week ended April 1, while the planned record release of oil announced by the 31-member nation International Energy Agency from Strategic Petroleum Reserves further weighed on the front-month crude contracts.

The release of 60 million barrels (bbl) from IEA countries, which includes the United States, European Union, Australia, Japan, and Mexico among others, comes atop of a previously announced decision to release 180 million bbl by the Biden administration. Those barrels are expected to be released over a six-month period that will track the U.S. schedule that begins in May, according to an IEA official, marking the second emergency oil release this year.

On March 1, IEA said its country members would draw 60 million bbl, which included 30 million bbl from the U.S. SPR, to counter soaring gasoline prices. Analysts, however, are skeptical whether reserve releases will have the desired effect on prices given a growing reluctance of Western traders to deal with Russian oil shipments.

On Tuesday, European Union announced a plan for the gradual phaseout of coal imports from Russia that could be followed by an embargo on oil shipments should the conflict in Ukraine intensify. For reference, the continent received 57 million tons of Russian coal in 2021 compared to 31 million tons for China, IEA data shows. This amounted to more than half of Europe's coal imports that year, according to Eurostat.

Offsetting a loss in Russian barrels, Kazakhstan's Caspian Pipeline Consortium terminal on the Russian Black Sea has resumed oil shipments on Wednesday after 10 days of no maritime exports.

"A large wave of nine million barrels of crude oil finally departed Kazakhstan's CPC terminal in Russian territory after 10 days of zero maritime exports," TankerTrackers said in a tweet today.

Two weeks ago, crude oil exports from the CPC terminal were halted completely after sustaining "critical" damage, the head of CPC said. The disruption in crude oil exports was the result of major storm damage and continuing bad weather.

The CPC pipeline transports between 1.2 million and 1.4 million barrels per day (bpd) of crude oil from Kazakhstan, with the supply disruption having added even more upside price pressure in a global market already struggling with tight supplies that are further constrained by sanctions on Russian crude. The pipeline remains a vital crude oil artery for Kazakhstan, accounting for two-thirds of the country's crude oil exports.

Further weighing on prices, the Energy Information Administration inventory report released at midmorning was mixed to bearish for the oil complex, showing commercial crude oil inventories unexpectedly increased 2.4 million bbl during the week ended April 1 along with a 100,000 bpd jump in domestic crude production. Domestic refiners once again increased run rates, up 0.4% from the previous week to 92.5% of capacity compared with analyst estimates for a 0.3% increase.

EIA also reported a 1.352 million bpd adjustment in the difference in its calculated supply and calculated disposition of crude oil, which equates to 9.464 million bbl on the week. While several factors can account for the adjustment, it implies greater supply availability than previously thought.

On the session, NYMEX May West Texas Intermediate futures plummeted $5.73 or 5.6% to settle at $96.23 bbl, and the ICE June Brent contract declined to $101.07 bbl, down $5.57 bbl. The steep drop in front-month WTI and Brent futures settlements helped in narrowing backwardation in the market, with the six-month calendar spread tightening $2.12 to $5.06 bbl at settlement, and Brent's six-month calendar spread narrowing $2.15 to $5.44 bbl. In early March following Russia's invasion of Ukraine, the six-month WTI calendar spread reached a record high $22.93 bbl, and the six-month calendar spread for Brent traded at $21.58 bbl -- the widest backwardation since the Gulf War in 1990 when it reached $22.07 bbl.

In the gasoline complex, commercial inventories fell by 2 million bbl to 236.8 million bbl compared with analyst expectations for inventories to have decreased by 200,000 bbl from the previous week. After declining for three consecutive weeks, demand for motor gasoline in the United States gained 63,000 bpd from a three-month low 8.562 million bpd, EIA data shows. Distillate stocks rose 771,000 bbl from the previous week to 114.3 million bbl, and are now about 15% below the five-year average, EIA said.

NYMEX May ULSD futures fell 12.30 cents to $3.3452 gallon, and the May RBOB contract plunged 11.87 cents to $3.0462 gallon at settlement.

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