Tepid Reserves Release Fails To Calm Oil Investors; Prices Soar

Meanwhile, Goldman thinks the oil market is underestimating risk: File Image/Pixabay

Oil prices on Tuesday skyrocketed by over 7 percent as a coordinated release of crude reserves by the U.S. and Japan failed to calm fears of supply disruptions stemming from the Russia/Ukraine war.

Brent rose $7.00, or 7.1 percent, to settle at $104.97 per barrel, while West Texas Intermediate rose $7.69, or 8.0 percent, to settle at $103.41.

John Kilduff, founding partner at Again Capital, said traders were disappointed in the size of the release of strategic reserves: the U.S. and Japan agreed to put 60 million barrels onto the market in an attempt to tame the sharp increase in crude prices.

This is the equivalent of less than one day of worldwide oil consumption.

Bart Melek, head of commodity strategy at TD Securities, said, "We are quite afraid that we are going to lose supply from Russia; the release from strategic reserves does not seem to be enough."

As if sensing the inadequacy of the initiative, a White House official on Tuesday stated that oil and gas companies should increase production if they want.

National Economic Council deputy director Bharat Ramamurti told Bloomberg, "Prices are quite high, the price signal is strong; if folks want to produce more, they can and they should," and he added that there are 9,000 unused leases the U.S. government has provided for production: "People are free to use them if they'd like to…the idea that there's some kind of severe restriction on that production is simply untrue."

But West Virginia democratic senator Joe Manchin pointed out the irony of White House energy policy by stating, "We're buying 650,000 barrels per day from Russia: it's ridiculous, totally ridiculous."

He called on Washington to help boost U.S. production.

Meanwhile, as far as strategists at Goldman Sachs Group are concerned, the oil market "may be underestimating" the risks of tighter supply on oil pricing.

Goldman strategists led by Dominic Wilson stated in a note, "So we think the 'risk premium' here should probably be larger: the market is starting to overestimate the impact that the [Russia/Ukraine] conflict will have on the Fed trajectory," and they added that front-end rates will likely reverse the recent rally.

Wilson went on to state that "even if we do see an eventual reduction in tensions, long-lasting shifts in policy and economic outcomes are now likely, and not just in local assets," and he warned of persistently higher commodity supply risks, changing inflation outcomes, rising defence spending in Europe and extended sanctions on Russian assets.