Second Weekly Drop For Oil As Doubt Continues Over Emergency Reserve Drawdown

Meanwhile, the Kremlin suggests that hostilities against Ukraine could soon end: File Image/Pixabay

The U.S. and International Energy Agency-member stockpile release, coupled with China's lockdowns due to Covid plus hawkish sentiment from the U.S. Federal Reserve were all factors that caused a second consecutive weekly decline for oil – however, the commodity achieved a daily gain on Friday of about 2 percent.

Brent rose $2.20, or 2.19 percent, at $102.78 per barrel, while West Texas Intermediate rose $2.23 to $98.26; for the week, Brent dropped 1.5 percent and WTI slid 1 percent.

Oil has now surrendered most of its gains made due to the Russia/Ukraine war, and Phil Flynn, senior market analyst at Price Futures Group Inc. pointed out that the IEA and U.S. releases of emergency stockpiles (180 million barrels in total over time) doesn't exactly help market conditions.

He said, "There's some concern that by artificially lowering prices, you are only going to increase demand and that's going to burn off that supply pretty quickly."

Stephen Innes, managing partner at SPI Asset Management, added, "I still think at some point the sentiment-driven sell-off will give way, and fundamentals will reassert themselves, especially as more market participants start fretting about how will the U.S. administration replenish the SPR drawdown."

Also of concern, for ANZ Research analysts at least, was that the release could dissuade the Organization of the Petroleum Exporting Countries (OPEC) from increasing output, even at current high oil prices.

The long-term solution to this problem was offered on Friday by JPMorgan, which stated in a note, "Looking forward to 2023 and beyond, global producers will likely need to ramp up investment to both fill the Russia-sized gap in supply and restock IEA strategic reserves."

Meanwhile, Friday's gains were capped by the Chinese government extending its lockdowns in Shanghai and other locales, a move that has not only sparked anger among citizens but has said to have severely curbed economic activity (although actual numbers have yet to be calculated).

Also on Friday came news that, depending on the follow through, could be a massive influence on oil trading moving forward: Dmitry Peskov, spokesman for the Kremlin, told media that what he called Russia's "special operation" in Ukraine could end in the "foreseeable future."

He said the possible termination of operations was due to Russia's aims being achieved and ongoing work by both the Russian military and Russian peace negotiators.