By Barani Krishnan

Investing.com: Will huge reserve releases lower crude prices on a market that is severely oversupplied? 

No, say oil longs, and they’re right if the market remains in deficit over the longer term. But in the short term, the actions of the Biden administration and other governments have started hurting this year’s energy rally.

Crude oil prices fell for the second consecutive day after the Paris-based International Energy Agency (or IEA) announced that it would release 120 million barrels of its member’s reserves to the open market in order to address a worldwide supply shortfall.

“Those long oil can keep denying that these reserves releases don’t matter to the longer-term price in this market. Maybe. But on a daily basis, they are causing havoc to the market’s volatility,” said John Kilduff, partner at New York energy hedge Again Capital.

By 2:00 pm ET (18:00 GMT), London-traded fell 4.5% to $101.94 a barrel, which is the benchmark for global oil prices. The session low was $101.10.

Brent lost 13% last Week, its greatest weekly fall since April 2020. After finishing the first quarter with a 39% increase, it was still showing the current volatility.

New York-traded U.S. crude oil benchmark, WTI, fell 4.7% to $97.19 after reaching an intraday low at $96.30.

WTI dropped below its $100 support level last week. Brent and WTI also fell 13% for their worst week since April 2020. This was despite an impressive 33% rise in the first quarter.

After the Biden administration announced last week that it would release 180,000,000 barrels from the U.S. Strategic Petroleum Reserve in the next six-months, an average of one million barrels daily, the IEA announcement was made.

On Wednesday, the IEA stated that the United States will receive half of the 120,000,000 barrels it releases. According to sources familiar with the matter, the 60 million barrels representing the U.S. share of the oil were included in last week’s 180 million barrels release.

This effectively means that 60 million more barrels will come from members other than the United States of the IEA. 

Cumulatively, 240,000,000 barrels or 1.33 Million barrels per day would land on the oil open market in six months.

It would triple the amount of monthly oil production that global oil producers in the OPEC+, Russian-controlled alliance, have produced. 

OPEC+ keeps at least four millions barrels of oil daily that are needed for consumers away from the market. This is to make sure that crude oil prices remain above, or about $100 per barrel. Additionally, sanctions are preventing the Russian government from delivering 3.0 million barrels of oil per day. Some of these exports have been denied.

Adding to Wednesday’s bearish sentiment in oil was data from the Energy Information Administration showing U.S. crude oil inventories rose last week for the first time in three weeks while stockpiles of distillates, which provide the diesel for trucks, buses and trains and fuel for jets, climbed a second week in a row, 

The  increases raised questions about energy demand in the world’s largest oil consuming country amid pump prices of fuel hovering near record highs, said industry analysts.

Crude inventories increased by 2.42 million barrels over the week to April 1 compared with an average draw forecast of 2.056million barrels by analysts.

Stockpiles of distillate, which also includes diesel and, increased by 771,000 barrels last week, compared to expectations for a draw at 0.819 million barrels. Before the last two weeks, distillates were the largest growth component in the U.S. crude oil complex. They saw almost non-stop inventory drops since January.

EIA released some bullish statistics last week on gasoline inventories. The agency reported a draw in oil of 2.04 million barrels, as opposed to the forecasts of an increase of 63,000 barrels. Automobile fuel gasoline, also known as petrol outside the United States, is America’s most-consumed oil product.

Exports of U.S. crude also rose last week, touching 3.69 million barrels versus the previous week’s 2.99 million, as American oil found more buyers abroad amid the tightness in global energy supply from the sanctions imposed on Russia.

Except for the drop in gasoline stockpiles and increase in exports last week, EIA data was overwhelming bearish. This included an increase of 1.7 million barrels at Cushing’s Oklahoma hub. It acts as a delivery point for WTI.

WTI reached $130, a new 14-year record. Brent rose to $140 in the two weeks that followed the Ukraine invasion. The result was that gasoline prices in the United States reached record levels of $4.35 per gallon.

Brent and WTI have both fallen from their peak since the Biden administration released every week oil from its U.S. reserves. Some 3.7 Million barrels of crude oil were released in the last week.

However, the gasoline price at the pump averaged more than $4 per gallon. Analysts believe that gasoline’s inflation, which is about $1.50 more than last year, may eventually cause oil demand to plummet.