Futures contracts for oil sharply declined after major consuming countries announced they would release over 100 million barrels of oil reserves to address supply shortages. Meanwhile, the minutes from the latest meeting of the U.S. central bank revealed a hawkish stance that boosted the dollar. The pace of selling in the oil market accelerated near the close, pushing the benchmark Brent crude and U.S. West Texas Intermediate to register their lowest closing levels since March 16.
Brent contracts settled at $101.07 per barrel, down $5.57 or 5.2%. U.S. crude contracts closed down $5.73, or 5.6%, at $96.23 per barrel. The International Energy Agency indicated that its member countries would release 120 million barrels from strategic reserves in an effort to mitigate sharp price increases. According to informed sources, this figure will include 60 million barrels from the strategic reserves in the United States. This commitment is part of a prior U.S. announcement regarding the withdrawal of 180 million barrels from reserves.
This marks the second time this year that the International Energy Agency has released oil from reserves, effectively boosting global supply by about two million barrels per day for at least the next two months while the world attempts to cope with the potential loss of Russian oil. The group collectively holds around 1.5 billion barrels in strategic reserves.
On the other hand, the minutes from the latest Federal Reserve meeting indicated that the U.S. central bank intended to raise interest rates by 50 basis points at most of its recent meetings but opted for a smaller increase due to the war in Ukraine. The minutes pointed to a hawkish approach from the Federal Reserve as it attempts to curb inflation, which provided a boost to the U.S. dollar. Oil prices often move inversely to the dollar since most oil transactions are conducted in greenbacks.
The oil market was also negatively affected by a 2.4 million barrel increase in U.S. crude inventories last week, while analysts had anticipated a decrease. U.S. oil production also rose, reaching 11.8 million barrels per day, the highest since late 2021, and is expected to continue rising. The United States also released about four million barrels from strategic reserves last week.
