Oil drops as US says plan to refill emergency reserves does not include trigger price

Brent price plunged as the US Department of Energy hints that deliveries probably won’t happen until after fiscal year 2023

Brent, which gained 67 per cent last year, has retreated after climbing to a notch under $140 a barrel in March. AFP

Oil prices dropped sharply on Thursday after the US Department of Energy said its plan to restock the nation’s emergency supply does not include a trigger price, which is any oil price below which the administration will start buying crude.

The department added that transactions are not likely to happen until after fiscal year 2023.

Brent, the benchmark for two thirds of the world’s oil, was trading 3.204 per cent lower at $91.24 per barrel at 9.57pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 3.41 per cent at $85.46 a barrel.

Earlier this week, Bloomberg reported that the US could start filling the Strategic Petroleum Reserve when oil prices drop below $80 per barrel.

“Claims that we are currently considering buying oil once it dips below $80 a barrel are inaccurate,” Bloomberg quoted Charisma Troiano, press secretary for the US Department of Energy, as saying.

“The Department of Energy proposed an approach months ago to replenish the strategic petroleum reserve, and that approach does not include any such trigger proposal.

“As we said then, we anticipate that replenishment would not occur until well into the future, likely after fiscal year 2023.”

The International Energy Agency has slashed its estimates for global oil demand growth in 2022 to two million barrels per day, marginally down from the 2.1 million bpd projection in August.

And demand is forecast to rise by “two million bpd in 2022 and 2.1 million bpd in 2023”, marginally lower than what was predicted in last month’s report, the agency said.

The decrease in demand is weighed down by renewed Chinese lockdowns and an ongoing slowdown in the Organisation for Economic Co-operation and Development (OECD) area, the Paris-based agency said in a report on Wednesday.

Brent, which gained 67 per cent last year, has retreated after climbing to a notch under $140 a barrel in March, following the beginning of Russia's military assault in Ukraine.

Trading has remained volatile amid the weakening global economic outlook, demand concerns and rising interest rates.

Lockdowns across China, which are affecting about 65 million citizens in the world's second-biggest oil consumer, also remain a concern for energy markets.

In a research note on Monday, strategists at UBS said that while the lender stills holds a positive outlook on crude prices, it has reduced its December oil forecast by $15 per barrel. UBS had previously projected a rebound in oil to $125 a barrel in the last quarter of this year.

The conflict in Ukraine has exacerbated inflationary pressures in European countries and put major currencies such as the euro, sterling and yen under pressure.

Last week, the European Central Bank raised its key interest rates by 75 basis points to tame record inflation.

The US Federal Reserve raised interest rates by 75 basis points in its past two meetings in an attempt to bring inflation down from a 40-year high.