WTI crude for May delivery (CL1:COM) closed the week -1% at $98.26/bbl, a modest move in light of the commitment by member nations of the International Energy Agency to release tens of millions of barrels from their strategic reserves.
Analysts say the unprecedented oil releases, expected to total 240M barrels, will depress prices in the short term but support them at a later point when the countries are forced to buy back oil to refill their stockpiles.
“The sentiment-driven selloff [in oil] will give way, and fundamentals will reassert themselves, especially as more market participants start fretting about how the U.S. administration will replenish the SPR drawdown,” SPI Asset Management said, according to the Wall Street Journal.
“There’s some concern that by artificially lowering prices, you are only going to increased demand and that’s going to burn off that supply pretty quickly,” according to Price Futures Group’s Phil Flynn.
The release also could deter producers, including OPEC and U.S. shale producers, from accelerating output increases, ANZ Research analysts said.
Meanwhile, the harsh COVID-19 lockdown of Shanghai by Chinese authorities has been extended, meaning “the business metropolis with its 25M inhabitants, which accounts for ~4% of Chinese oil demand, is condemned to remain at a standstill,” Commerzbank’s Carsten Fritsch told MarketWatch.
The price of natural gas (NG1:COM) surged nearly 10% on the week to close at $6.28/MMBtu, the highest in more than 13 years, in part based on anticipation of increased demand for U.S. liquefied natural gas in Europe, as countries seek alternatives to Russian gas.
The energy sector’s 3.2% gain for the week ranked second among all S&P sectors.