Oil futures prices were roiled Thursday by a report that the U.S. had reached an agreement to release oil from its emergency reserves -- only to be calmed less than an hour later by a White House denial.
A relatively quiet morning was interrupted by a Reuters news service story that the U.K. expected the U.S. to act soon to release oil from the Strategic Petroleum Reserve -- or SPR, the nation's emergency oil stockpile -- in the face of rising prices. The report came a day after President Barack Obama and British Prime Minister David Cameron said they would keep open discussions about a possible release of oil reserves, a U.K. official familiar with the talks said.
Oil futures on the New York Mercantile Exchanges dropped more than $2 to a one-month low of $103.78 on the report. But most of those losses were erased after the White House spokesman Jay Carney called the report "inaccurate" and "false" and denied any deal for an oil release was in place.
The release of the oil would increase global supplies and drive the price of oil lower. Despite the denial, some say the damage had already been done to the bullish outlook for prices.
Tensions between Iran and the west, over Tehran's nuclear program, have pushed U.S. crude prices 11% higher since November as traders fretted that Iran could move to disrupt supplies traveling through the Strait of Hormuz, through which a third of the world's seaborne crude passes. Thursday's hubbub reminded traders that governments stand ready to add to supplies in the event of an Iran-related event.
"With this idea in the back of its mind, I think the market's going to be a little sketchy going forward," said Carl Larry of the Oil Outlooks and Opinions newsletter of the possibility of a release of oil reserves.
"Nobody wants to take a risk" of betting on prices going higher, he added.
April-delivery light, sweet crude oil on the New York Mercantile Exchange settled 32 cents lower at $105.11 a barrel.
ICE North Sea Brent crude for April settled $1.42 lower at $123.55 a barrel.
The U.S. was the linchpin of a move by the International Energy Agency in June 2011 to release 60 million barrels of crude oil from emergency stockpiles amid concerns over a supply shortage caused by the Libyan civil war. The U.S. provided half of the emergency oil released then.
Rising prices of crude and crude products like gasoline, along with the continuing standoff between Iran and the west, has stirred market chatter that a similar release may be forthcoming.
North Sea Brent crude oil prices have recently traded to near their highest levels since 2008 and gasoline prices in the U.S. have climbed and are widely expected to top $4 a gallon nationwide for the first time since summer 2008.
Still, some analysts said that despite talk of a release from emergency reserves, there isn't a shortage of oil.
"A shortage of crude or products does not currently exist within the U.S., and European product markets appear adequately supplied," said Jim Ritterbusch, president of Ritterbusch and Associates, a Galena, Ill., research firm.
Tony Rosado, broker at GA Global Markets, said Nymex crude could soon slip to $98 a barrel, for the first time since early February as the hot market is chilled by talk of stock releases.
But Gene McGillian, broker and analyst at Tradition Energy in Stamford, Conn., said after all the frenzy over the SPR talk, "all the same factors are going to continue to provide support," including worries about a disruption of Iranian oil supply, which he said adds a $10-to-$15 a barrel premium to prices.
On Wedneday, the head of the International Energy Agency, the oil policy watchdog for the major industrialized nations, said that an oil release isn't now needed. "At this moment, there is no reason to use it," said Maria van der Hoeven, IEA executive director. She said demand is slipping due to slower economic growth, but there are signs of a tightening market as global inventories are below five-year averages for a seventh straight month in the major industrialized nations.
Saudi Arabia, the world's largest oil exporter, has lifted output to a three-decade high of 10 million barrels a day and Oil Minister Ali al-Naimi said the country stands ready to cover "any shortfalls -- perceived or real -- in crude oil supply."
In the U.S. company-held inventories of crude oil and petroleum products are sufficient to meet 56 days of current demand, four days above the five-year average, but at the same level as last June, when the U.S. led an IEA move to tap emergency stocks, government data for March 9 show.
Last June, when the U.S. sold 30 million barrels of oil from the Strategic Petroleum Reserve amid Libya supply worries, stock cover was three days above the five-year average.
Meanwhile, the near 700 million barrels of SPR crude is sufficient to cover 82.5 days of US net oil imports, the highest level since 1992, according to Energy Information Administration data. The level of cover at the end of 2011 rose from 77 days in 2010 as net imports dropped more than 1 million barrels a day and the U.S. became a net exporter of petroleum products for the first time in 60 years.
The relatively high level of inventory could provide an argument against critics who say the U.S. would be vastly depleting its emergency stocks if the Obama administration decides to tap the reserve, as it did last June during Libya's civil war. A similar 30-million-barrel drawdown in the reserve would put stocks at near 666 million barrels. Measured against the EIA's projection of 2012 net imports, reduced SPR stocks would cover 79 days of net imports at the end of 2012, or two days more than they did at the end of 2010 and eight days more than the five-year average level.
In Thursday's trading reformulated gasoline blendstock futures for April settled 5.85 cents lower at $3.2885 a gallon. April heating oil settled 3.93 cents lower at $3.2225 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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