Oil prices have dropped after White House officials said the US was considering a record-breaking release of crude oil reserves to allay fears of shortages after the Russian invasion of Ukraine.
A barrel of Brent crude fell more than 5% to $105.50 (£80.40) on Thursday as traders digested the impact of the largest-ever release since the reserve was created in 1975.
The war in Ukraine has sparked concerns that sanctions against Russia, which is the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia, would lead to a cut in supplies.
Brent crude hit $139 a barrel earlier this month after sanctions were imposed on Moscow by the US and its allies. Oil prices have fallen back since then, but Brent crude is still almost 70% higher than it was a year ago.
White House officials said Joe Biden would make a statement at 1.30pm local time (1830 BST), to set out “his administration’s actions to reduce the impact of [Vladimir] Putin’s price hike on energy prices and lower gas prices at the pump for American families”.
The US is the world’s largest oil producer, producing about 12m barrels a day. Russia produces about 10m barrels a day.
Traders said the signal from the US administration of higher flows of oil into the international system combined with lower than expected manufacturing output in China could depress prices further.
Beijing has continued to lock down cities affected by a handful of Covid-19 cases, limiting factory production in March. While some Chinese officials have hinted at a change of policy and the easing of restrictions, President Xi Jinping has maintained tough rules on individuals and businesses once coronavirus has been detected.
The oil cartel Opec and its allies including Russia were due to meet on Thursday to agree production limits. They were expected to maintain an existing deal to gradually increase production.
Russ Mould, the investment director at the stockbroker AJ Bell, said its was noteworthy that despite Biden pledging the biggest release from the reserve since the 1970s, oil remains stubbornly above $100 a barrel.
He said: “You can understand why the US leader felt he had to do something, given the political heat he is getting for rising fuel prices, however, a speculated release of one million barrels of oil per day over the coming months has to be seen in the context of total global output of around 100m barrels per day.
“Really this is tinkering at the margins. What might put more of a brake on prices is action by Opec at its meeting later but the extent to which it could increase production, even if it wanted to, is open to question.”
Mould said the slowdown in China could persist, further easing pressure on prices. “The other key focus remains the war in Ukraine with mounting scepticism over the destiny of the latest round of peace talks,” he said. “The market may have to accept this will be a protracted conflict and adjust its assumptions accordingly.”
Some Opec+ members have struggled to fulfil their production quotas, limiting the fall in prices over recent weeks. Opec’s de facto leader, Saudi Arabia, and the United Arab Emirates have spare production capacity but have held off increasing their output and upsetting the group’s agreed allotments.
Both Saudi Arabia and the UAE voted for a UN resolution calling for Russia to withdraw from Ukraine but have stressed that they see the role of Opec+ as stabilising world oil markets and separate from international politics.
The UAE energy minister said Russia, with its 10m barrels of oil a day, was an important member of Opec+.
“And leaving the politics aside, that volume is needed today,” Suhail Al Mazroui said on Monday. “Unless someone is willing to come and bring 10m barrels, we don’t see that someone can substitute Russia.”