Oil price falls as US releases more emergency crude reserves
Oil prices fell on Thursday as the US announced a “historic” move to tap its vast reserves, easing pressure on the $23tn Treasury market that is on track to post its worst quarterly performance on record.
Brent crude, the international oil benchmark, dropped 4.6 per cent to $108.21 a barrel, as the White House said it would release an extra 1mn barrels a day from the country’s emergency stockpile for the next six months in an effort to cool oil prices that have spiralled since Russia’s invasion of Ukraine, exacerbating already elevated inflation.
Meanwhile, the Opec+ group of oil-producing nations said it would aim to raise production by 432,000 barrels a day in May, continuing with the monthly plan agreed last year to gradually replace output cut at the start of the pandemic.
The yield on the benchmark 10-year US Treasury note, which moves inversely to its price and underpins global borrowing costs, fell 0.04 percentage points to 2.32 per cent.
This key debt yield has almost doubled since early August last year, as supply chain disruptions related to the coronavirus crisis drove inflation to multi-decade highs and the US central bank responded with signals of aggressive interest rate rises ahead.
“As oil prices come down, inflation expectations come down and that has helped bonds rally,” said Bhanu Baweja, chief strategist at UBS’s investment banking unit.
A Bloomberg index of total returns from Treasuries had fallen 5.6 per cent as of Wednesday’s close, leaving it on course to post its weakest quarterly performance since the inception of the index in 1973.
Germany’s 10-year Bund yield, which trades substantially below US borrowing rates to reflect the European Central Bank’s looser monetary policies, dropped 0.11 percentage points to 0.55 per cent.
In equity markets, Wall Street’s benchmark S&P 500, almost 4 per cent lower this year, was down 0.4 per cent in the early New York afternoon. The technology-heavy Nasdaq Composite was down 0.6 per cent.
The moves came as fresh data showed that the US Federal Reserve’s preferred inflation gauge — the core personal consumption expenditures index — rose 0.4 per cent in February from the previous month. The figure marked a moderation from January, but took the annual increase in the core PCE index to 5.4 per cent — the quickest pace in about 40 years.
European equity markets fell on Thursday, with the Stoxx 600 gauge losing 0.9 per cent. The drop took the regional index 6.5 per cent lower for the first three months of 2022, marking its worst quarter in two years. The UK’s FTSE 100 closed 0.8 per cent lower on the day, but 1.8 per cent higher for the quarter.
Oil prices have risen almost 40 per cent so far in 2022, spurred higher by Moscow’s invasion of Ukraine and western sanctions on exports from Russia, which is the world’s third-biggest oil producer behind the US and Saudi Arabia.
A reserve release of 180mn barrels would reduce the amount of “price-induced demand destruction” needed to bring supply and demand back into balance, analysts at Goldman Sachs estimated.
“This would remain, however, a release of oil inventories, not a persistent source of supply for coming years,” Goldman analyst Damien Courvalin cautioned in a note to clients.
In Asian equity markets, Hong Kong’s benchmark Hang Seng index fell 1.1 per cent, while China’s CSI 300 index of Shanghai and Shenzhen-listed stocks was down 0.7 per cent. Japan’s Topix shed 1.1 per cent.
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