Oil prices surge over 7% as global crude reserve release disappoints

[NEW YORK] Oil prices surged over 7 per cent on Tuesday to their highest since 2014, as a global agreement to release crude reserves failed to calm fears about supply disruptions from Russia's invasion of Ukraine, and instead underscored energy shortage concerns.

Members of the International Energy Agency (IEA), which include 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 pushed major benchmarks past US$100 a barrel.

However, 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 energy disruptions.

Brent futures rose US$7.00, or 7.1 per cent, to settle at US$104.97 a barrel, their highest close since August 2014.

US West Texas Intermediate (WTI) crude rose US$7.69, or 8.0 per cent, to settle at US$103.41. That was its highest close since July 2014 and its biggest daily percentage gain since November 2020.

In intraday trade, Brent hit its highest since July 2014 and WTI its highest since June 2014. In addition to crude, US heating oil and petrol futures also hit their highest since 2014.

Russia's military move on Kyiv, Ukraine's capital, has stalled as its forces struggle with basic logistics challenges, including shortages of food and fuel, with some units appearing to be gripped by low morale, a senior US defence official said on Tuesday.

"Oil's climbing the Ukraine war wall of worry," said John Kilduff, partner at Again Capital in New York. He said traders were 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.

The world's biggest shipping firm, AP Moeller-Maers, 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 and Shell, have announced plans to exit Russian operations and joint ventures, while TotalEnergies said it would not invest further capital in its Russian operations.

The largest supplier of global oil, the Organization of the Petroleum Exporting Countries (Opec) and allies including Russia, known as Opec+, have not signaled a desire to boost production beyond their expected 400,000 barrels per day (bpd) increase in April, despite entreaties from the United States and others.

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

"The pledge from Opec+ to increase supply is so far a paper promise," said Louise Dickson, senior oil market analyst at Rystad Energy, noting that participating Opec+ deal members are in fact producing about 800,000 bpd below stated target levels, adding to the shortness in global supplies.

Futures for Brent and WTI through October were in what Robert Yawger, executive director of energy futures at Mizuho, has called "super-backwardation" with each month trading at least US$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.

Adding to global oil supply worries, Libya's parliament approved a new government on Tuesday, but the incumbent administration rejected the vote and vowed not to cede power, pushing a fragile peace process to the brink of collapse.

Libya, an Opec member, produced about 1.2 million bpd of crude in 2021, according to US energy data.

Oil markets, meanwhile, ignored the bearish prospect of an increase in US crude stockpiles. Analysts expect the latest US data will show a 2.7 million-barrel increase in crude stocks in the week to Feb 25.

The American Petroleum Institute (API), an industry group, will issue its US inventory report at 4.30 pm EST (2130 GMT) on Tuesday. The US Energy Information Administration (EIA) reports at 10.30 am EST (1530 GMT) on Wednesday. REUTERS