Oil futures: Crude retreats as US flags SPR release in Q2

Quantum Commodity Intelligence - Crude oil futures Tuesday eased back on surprise news the US government is planning a further release of crude stocks, while CPI data due for release later in the day was also keeping markets on edge.  

April ICE Brent futures were trading at $85.30/b (1730 GMT), compared to the day's range of $84.13-$86.42/b and Monday's settle of $86.61/b.

At the same time, Mar23 NYMEX WTI was trading $78.85/b versus Monday's settle of $80.14/b.  

The Biden administration late Monday announced another sale of oil from the Dept. of Energy's Strategic Petroleum Reserve (SPR), with 26 million barrels set to be delivered from 1 April to 30 June.

Unlike the largest-ever drawdown in 2022 of the SPR oil that Biden announced in response to Russia's war in Ukraine, the latest release is mandated under existing laws.

"There had been suggestions in recent weeks that the US administration would cancel or at least delay this release, after large emergency releases last year. These have left SPR stocks at a little less than 372 million barrels - the lowest level since 1983," said Warren Patterson, head of ING's commodity research.

Also weighing on sentiment, US shale output pushed up to pre-Covid levels during January and is on course to continue to rise through February and March to a record high, according to monthly figures from the Energy Information Administration (EIA). 

Meanwhile, the latest US data had CPI up 0.5% in January, slightly above forecasts of a 0.4% rise, to leave annual inflation at 6.4%.

However, there had been some concern the figure could be higher, with food prices up more than 10% from a year ago in December, while US gasoline prices at the pump were up about 30 cents a gallon in January, according to AAA.

Russia

Prices had been shored up since last week after Russia said it would cut output by 500,000 bpd.

But there are increasing signs that Russia is struggling to maintain output, and while Moscow has found buyers for steeply discounted barrels, sanctions may be curtailing its ability to maintain current levels.

"It is our understanding that Russia may be starting to encounter difficulty maintaining output at technically challenging fields due the initial US+EU sanctions that prohibited the transfer of key technology and equipment to the Russian energy industry," said RBC Capital Markets.

According to Bloomberg, Russia's oil exports fell to a six-week low in the first full week of February, reversing a previous trend and providing a sign of what's to come as it prepares for a production cut of 500,000 bpd next month.

Aggregate flows of Russian crude fell by 562,000 bpd, or 16%, in the seven days to 10 February, according to Bloomberg ship tracking data.

Russia said Monday it plans to sell more than 80% of its oil exports to what it calls "friendly" countries in 2023, according to Deputy Prime Minister Alexander Novak.

"In terms of deliveries to countries that support illegal price restrictions, our position is widely known and remains unchanged - such countries will not receive Russian oil," said Novak.

Meanwhile, a second senior OPEC figure this week indicated the group is comfortable with current price levels and market trajectory.

UAE energy minister said Monday there is no need for the OPEC+ group of oil producer nations to meet earlier than scheduled, with the next full ministerial meeting planned for 4 June.

"I do not see a requirement for a meeting, the market is balanced," said Suhail al-Mazrouei.

OPEC lifted its 2023 global oil demand growth forecast by 100,000 bpd Tuesday, underpinned by demand from China after Beijing rolled back most Covid controls.