Sonali Paul

MELBOURNE (Reuters – Oil prices recovered some of the losses they suffered on Thursday, after plummeting more than 5% at a three week low. The drop was caused by oil exporting nations releasing large quantities from their emergency reserves to make up for Russia’s supply shortfall.

Futures rose 1.3% to $102.39 per barrel at 0119 GMT. U.S. West Texas Intermediate crude futures (WTI), however, rose 1.2% to $97.41 per barrel.

The 60 million barrels of oil that International Energy Agency members agreed to share with the 180 million barrels released by the United States last Wednesday were part of an effort to lower prices on a tight market after Russia’s invasion.

Russia considers its actions against Ukraine an “extraordinary operation” in disarming its western neighbor.

Analysts believe that the supply is still tight even though emergency oil stockpiles were released.

Stephen Innes, SPI Asset Management managing director, stated, “In addition the immense global reserves released, demand destruction is currently the only price-lowering mechanism within a world lacking inventory buffers.”

Baden Moore from National Australia Bank (OTC), said the latest release along with the coordinated release of the IEA announced March 1, equates 1 million barrels per hour in extra supply, starting in May through the end in 2022. That would put a cap on prices in near term.

Moore explained that “the additional supply reduces short-term upside risks to the market” and “likely avoids the need of refinery cuts in near term.” He also noted, but added a cautionary note. “But, the requirement to restock reserve, which is expected in 2023,” Moore warned. “However, the forward market tightness in places where the fundamental outlook for supply remains unchanged adds to market tightness. It tilts price risk towards the upside.”

The market is tightened by the stalled indirect talks between Iran, the United States and on the renewal of a 2015 deal on Tehran’s nuclear program.

To resolve the remaining problems, Washington and Tehran need to make decisions politically, say negotiators.