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Oil prices surge 9% as global crude reserve release disappoints

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NEW YORK: Oil prices surged 9% on Tuesday, as a global agreement to release crude reserves failed to calm fears about supply disruptions from Russia’s invasion of Ukraine, and instead underscored concerns about growing disruptions.

Members of the International Energy Agency (IEA), which includes the United States and Japan, agreed to release 60 million barrels of crude from their reserves to try to quell the sharp increase in prices that has pushed major benchmarks past $100 a barrel. 

However, the news of that release equivalent to less than one day of worldwide oil consumption only underscored the market’s fear that supply will be inadequate to cover growing disruptions to the crude market.

Brent LCOc1 futures rose $8.80, or 9%, to $106.77 a barrel by 11:43 am EST (1643 GMT), heading for their biggest daily percentage gain since March 2021.

US West Texas Intermediate (WTI) crude CLc1 rose $9.89, or 10.3%, to $105.61, on track for its biggest daily percentage gain since May 2020.

Brent hit its highest since July 2014 and WTI its highest since June 2014. In addition to crude, US distillates HOc1 and gasoline RBc1 futures also hit their highest since 2014.

“Oil’s climbing the Ukraine war wall of worry,” said John Kilduff, partner at Again Capital in New York. He said traders could be disappointed in the size of the release of strategic reserves.

US-led sanctions on Russia have largely not specifically targeted the energy sector, but traders are shying away from trading Russian barrels, leading to big discounts on that oil and tightening supply for other kinds of crude. 

Russia exports 4 million to 5 million barrels per day (BPD) of crude and 2 million to 3 million BPD of refined products. Buyers of Russian oil are facing difficulty overpayments and vessel availability owing to sanctions, with BP canceling fuel oil loadings from a Russian Black Seaport. 

The world’s biggest shipping firm, Maersk, was halting container movement to and from Russia, while Britain has banned all ships with any Russian connection from entering its ports. 

Major oil and gas companies, including BP PLC and Shell PLC, have announced plans to exit Russian operations and joint ventures, while Total Energies said it would not invest further capital in its Russian operations. 

The largest supplier of global oil, the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, have not signaled a desire to boost production despite entreaties from the United States and others.

The group is due to meet on Wednesday for a monthly meeting.

“OPEC(+) will likely stick to its original plan of a monthly 400,000 barrels per day (BPD) increase, which will not alleviate fears,” said Tamas Varga at PVM Oil Associates.

Futures for Brent 0#LCO: and WTI 0#CL: through November were in what Robert Yawger, executive director of energy futures at Mizuho, has called “super-backwardation” with each month trading at least $1 a barrel below the prior month.

Backwardation, a market structure where prompt contracts are more expensive than those for later dates, indicates fear of being able to find cargoes in the near term, as global oil demand has largely recovered from the worst of the coronavirus pandemic while production has not kept pace.

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