Oil rises on supply concerns despite getting reserves released
Oil prices rose on Monday amid concerns over supply shortages, despite the release of products from oil-consuming countries' strategic reserves and the ceasefire in Yemen which has sparked hopes that supply problems in the Middle East may ease.
Brent crude futures rose 9 cents, or 0.09%, to $104.48 a barrel as of 0427 GMT, while West Texas Intermediate (WTI) crude was up 3 cents, or 0.03%, at $99.30 a barrel. Both contracts dropped $1 when the markets opened on Monday.
The United Nations has secured a two-month ceasefire between a Saudi-led coalition and the Iran-backed Houthi group for the first time in seven years of conflict. This fragile softening cannot help alleviate the absence of Russian oil.
The Russian oil industry was affected by Western sanctions and buyers' reluctance after Russia's invasion of Ukraine. Oil and gas condensate production of the world's second big exporter fell to 11.01 million barrels per day (bpd) in March from an average of 11.08 million barrels per day in February, industry sources said. Estimates of the loss of the Russian oil supply range from 1 million to 3 million barrels per day.
Oil prices fell nearly 13% last week after the US announced it would sell around 1 million barrels per day from the Strategic Petroleum Reserve (SPR) for six months starting in May. The third release in the last six months is expected to act as a bridge until domestic producers increase production and balance supply and demand.
The U.S. Department of Energy officially outlines the sale of oil from emergency reserves, while members of the International Energy Agency agreed to release more oil on Friday. The IEA said the volume will be made public this week.
The joint efforts of the US and its allies may temporarily offset the supply shortage in 2022, but it would not be right to expect this to be a long-term solution.
Also, US oil producers may be reluctant to increase production to keep profits high. Despite the US calls for energy companies to increase production, rig growth has been slow as drillers prefer to pay shareholders cash at high crude oil prices rather than increase output.
Demand concerns in China, the world's largest oil importer, continue as COVID-19 quarantines are extended in Shanghai, its most populous city.
China's transport ministry expects a 20% drop in road traffic and a 55% drop in flights during the three-day Qingming holiday, which began on Sunday, due to the flare-up of COVID-19 cases in the country.
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