WTI hits fresh multi-week lows, eyes test of March lows in $93.00s following IEA reserve release announcement

• Oil prices fell on Thursday, hitting fresh multi-week lows in the mid-$95.00s, as bears eye a run lower towards $90.
• First prices must break below March’s lows in the $93.00s.
• Massive oil reserve release announcements from the IEA plus technical selling seem to be weighing on sentiment for the moment.

Oil prices pushed lower on Thursday, with front-month WTI futures failing an attempt earlier in the session to push back higher towards $100 again and with prices subsequently sliding to fresh lows since 17 March under $95.50. At current levels in the $96.00s, WTI trades with on-the-day losses of slightly more than $1.50, with bears eyeing a test of March lows in the mid-$93.00s.

Non-US IEA nations on Wednesday announced that they would release a further 60M barrels of crude oil, which comes on top of the 180M barrel reserve release announcement made by US authorities last week. 15M of those barrels will come from Japan, the Foreign Minister there revealed on Thursday. The prospect of all these added barrels in the near-term is clearly weighing on crude oil, as it reduces the acute threat of a near-term supply shortage as Russian output falls due to sanctions.

Technicians noted that WTI made bearish moves on Thursday, confirming a break below a key long-term pennant that had been squeezing the price action over the last few weeks. Technical selling could carry WTI all the way lower to the next key support area around $90 per barrel. But analysts have noted that while the announced reserve releases from the IEA (the largest in history) are significant, they are unlikely to make up for the more than 2M barrels per day in output expected to be lost from Russia.

A push even lower than $90 thus might be a great difficulty. Indeed, should concerns about global supply continue (which seems very likely), a dip back to these levels is likely to be viewed as a buying opportunity. Some analysts pointed out that recent reserve release announcements have put upward pressure on crude oil futures scheduled for delivery further than six months out, given expectations that, following massive reserve releases in the coming months, nations will need to restock.

This diminishes the prospect of a pullback in oil prices later in the year. Meanwhile, other analysts said that recent reserve release announcements make OPEC+ less likely to open the taps, despite increased calls from major oil consumers for more output. All the while, indirect US/Iran talks to rekindle the 2015 nuclear deal and remove sanctions capping the latte’s crude oil exports remain at an impasse, with political decisions reportedly needed in Washington and Tehran to move things forward.

Aside from massive oil reserve releases, the only other factor that could ease the global supply squeeze is the state of lockdowns in China. As the lockdown in Shanghai enters its eleventh day, high-frequency flight data showed traffic at its lowest since early 2020. With the highly virulent Omicron Covid-19 variant proving difficult to contain, if lockdowns further spread, that presents a major threat to Chinese oil demand. China is the world’s largest consumer of more than 14M barrels of crude oil per day.