Rashid Husain SyedGlobal crude oil markets are cooling.

The United States’ announcement that it would release one million barrels per day (bpd) of crude from strategic reserves for six months and an expected similar announcement from other countries have helped cool the markets. The announcement followed growing questions about the real supply disruptions from Russia, reports that the U.S. demand has not been as strong as predicted, and the resurgence of COVID-19 in Shanghai, China.

Oil is headed for its biggest weekly loss in more than 10 years on the global markets after the U.S. administration of President Joe Biden ordered an unprecedented release of crude from its strategic reserves. As many as 180 million barrels of American oil are to be released. And Biden said he expects another 30 million to 50 million barrels will come from allies.

Oil prices fell seven per cent on Thursday on the announcement of the largest ever release from the U.S. Strategic Petroleum Reserve. Goldman Sachs Group Inc. immediately cut its price forecasts for this year.

“The market is short about two million barrels a day, if not more, from Russian supplies into the global market,” Amos Hochstein, the U.S. State Department’s senior energy security adviser, told Bloomberg Television. To plug this supply shortfall, the U.S. plans to release one million barrels per day for six months.

The White House is also calling on Congress to impose financial penalties on oil and gas companies that lease U.S. public lands but aren’t producing energy. “Too many companies aren’t doing their part and are choosing to make extraordinary profits and without making the additional investment to help with supply,” the White House said. “One CEO even acknowledged that, even if the price goes to $200 a barrel, they’re not going to step up production.”

Questions are also emerging about the actual dent in global crude oil supplies due to the sanctions on Russia. The weekly U.S. oil demand data provided by the Energy Information Administration (EIA) has been significantly overestimating the demand, oil data analytics firm OilX said on Friday.

“U.S. weekly data significantly overestimated total monthly oil demand, not just in other oils, but also for road fuels,” Oilprice.com said, quoting an OilX post on Twitter.

The weekly estimates for March showed that recent demand strength has been easing, the report added.

In its latest weekly assessment, the EIA estimated gasoline demand alone fell from 8.63 million bpd to 8.5 million bpd last week.

The downward revision could be a sign that demand wasn’t as strong as many analysts believed earlier this year, Oilprice.com suggested.

The resurgence of COVID in China, the world’s largest crude importer, is another barrier to global crude balance. China introduced a series of lockdowns to curb a resurgence of COVID-19. Those curbs are starting to affect the economy, and crude consumption, with manufacturing activity contracting in March.

In addition, despite all the talks of sanctions, Russia’s crude oil exports appear to have been steady in March. But the full impacts of sanctioning, difficulties with payments, insurance and shipping are likely only to become evident from April onwards, recent media reports quoting data consultants Kpler say. In March, Russia exported some 4.45 million bpd of crude. This was only slightly down from February’s 4.6 million bpd in exports.

Media reports suggest that the flows from Russia are realigning. Europe took 2.06 million bpd in March, down from February’s 2.97 million bpd, while Asia imported 1.84 million bpd in March, up from February’s 1.39 million bpd.

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China and India appear to be the two primary beneficiaries of the sanctions on Russia. They’re not paying heed to the warnings from the United States, and both countries are receiving crude from Russia at discounted prices.

Geopolitical dynamics are also at play. The possibility of a new nuclear deal with Iran, the return of Venezuela to oil markets and tensions between the United States and erstwhile ally Saudi Arabia all are having an impact on the market.

The Organization of Petroleum Exporting Countries and its allies in the OPEC+ don’t appear ready to open their taps, as requested by Biden. At its ministerial meeting on Thursday, OPEC+ agreed to raise output only by about 432,000 bpd in May.

Traders are beginning to say the crude oil market is nowhere near as tight as the paper trade implies – and what you have is a cocktail of contradictory information, Reuters reported.

All this means that oil prices will continue their downward trend in the coming weeks, barring something unforeseen striking the markets.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.

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