NEW YORK: Oil prices rose to a one-week high on Tuesday after a move by the United States and other consumer nations to release tens of millions of barrels of oil from reserves to try to cool the market fell short of some expectations.
The United States said on Tuesday it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude.
But analysts said the effect on prices was likely to be short-lived after years of declining investment and a strong global recovery from the COVID-19 pandemic.
Brent futures rose $1.83, or 2.3%, to $81.53 a barrel by 11:01 a.m. EST (1601 GMT), while US West Texas Intermediate (WTI) crude rose $1.35, or 1.8%, to $78.10.
That puts Brent on track for its highest close since Nov. 16 and pushed Brent's premium over WTI to its highest since mid-October.
Talk of a coordinated reserves release, a strong US dollar and a potential hit to energy demand from a fourth wave of COVID-19 cases in Europe has already caused Brent prices to drop over 10% since they hit a three-year high of $86.70 per barrel on Oct. 25.
US to release oil from reserves after OPEC+ rebuffs call for more crude
President Joe Biden's administration said it would release 50 million barrels from the US Strategic Petroleum Reserves (SPR), which will start hitting the market in mid to late December.
"The market is not impressed with the Biden Administration's announcement ... because the majority of the release is actually a loan to the market and the volume that is going to be sold was already approved by Congress as part of the deficit reduction legislation," said Andrew Lipow, president at Lipow Oil Associates.
The OPEC+ alliance between the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia has so far rebuffed repeated requests from Washington to pump more oil.
The United Arab Emirates Energy Minister Suhail Al-Mazrouei said on Tuesday the UAE saw "no logic" in increasing its own contributions to global markets at the moment, adding technical data gathered ahead of an upcoming OPEC+ meeting in December pointed to an oil surplus in the first quarter of 2022.
In addition to the front-month, the WTI forward curve for 2022 declined by almost 7% since hitting a recent high of $76.59 per barrel in late October in anticipation of more supply down the road.
"The tug of war between producers for higher prices and consumers for lower prices can only lead to a very volatile price environment in 2022," said Louise Dickson, senior oil markets analyst at Rystad Energy.
The dollar index, meanwhile, held near a 16-month high on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that US interest rates will rise in 2022.
A stronger dollar makes oil more expensive for holders of other currencies, which traders said was weighing on crude prices.