USOIL Down After US Strategic Reserves Release

US Strategic Petroleum Reserve (SPR)

US President Biden authorized on Thursday the unprecedented release of one million barrels/day for the next six months from the country's SPR, in order to combat high prices caused by the Russian-Ukraine war and sanctions against Russia, as well as the COVID-19 pandemic.

This is the third and largest such move by the United States in recent months, since in early March and a few days after Russia's invasion in Ukraine, the Department of Energy had released 30 million barrels of oil. This was part of a coordinated action from the International Energy Agency for the release of 60 million barrels of oil from member-countries' emergency reserves. ^[2]

Not long after that and following a series of sanction against Russia, President Biden had banned oil imports form the country.

In November, long before the events in Ukraine unfolded, Mr Biden had Department of Energy to make available 50 million barrels of oil from the Strategic Petroleum Reserve (SPR) in order to lower rising prices that had been hurting American consumers.

OPEC+ Output

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, which include Russia and is commonly referred to as OPEC+, has been facing pressure to increase production and help bring down prices, which had increased due disruptions from the pandemic and most recently the war in Ukraine.

The group has resisted such calls and has repeatedly stuck to its output plan adding of 400K barrels per day (bpd) every month, as it has been doing since August 2021. Yesterday, it announced its decision to increase output by 432K in May, marginally higher than the previous adjustment. ^[5]

The 27th OPEC and non-OPEC Ministerial Meeting concluded that current volatility is not caused by fundamentals, but by ongoing geopolitical developments, seeing a well-balanced market.

USOIL Analysis

The commodity dropped after the news and extends its losses today, shedding around 12% on the week and returning below the EMA200 (black line). It is now exposed to last month's lows (93.51) that would bring key 88.80-82.80 area in the spotlight. This region however, has the potential to contain larger declines, sincee it includes the ascending trend-line from December's lows and the 200Days EMA.

Despite USOil's retreat and weekly losses, its prior visits below the EMA200 have proved short-lived, while the oil reserves release form the US is merely a short-term fix to a long-term problem. As such, the commodity has not lost the ability to push higher, although a catalyst will likely be needed for taking out the descending trend-line from last month's multiyear highs (108.77-109.00).