Oil price drops from 7-year-high after Russia & US ease energy supply worries

Global crude prices have dropped around 1% on Thursday after Russia offered to ease the energy crisis in Europe with extra gas supplies, while the US hinted at releasing crude from its strategic reserves.

As of 12:00 GMT, the price of December futures for global benchmark Brent crude fell to $80.28 per barrel, while November futures for US crude benchmark West Texas Intermediate (WTI) dropped by 1.32%, to $76.41 per barrel.

Oil prices in recent days have shown a correlation with prices for natural gas. The record rise in gas prices in Europe has drawn oil along with it as a substitute commodity. With gas prices now dropping, oil is following suit.

Natural gas prices reached unprecedented highs on the European market on Wednesday, reaching a record $1,937 per thousand cubic meters. After Russian President Vladimir Putin offered additional supplies to Europe, gas prices began to retreat dramatically, falling below $1,000 per thousand cubic meters on Thursday.

The pressure on the price of oil was also somewhat lifted by the comments of US Energy Secretary Jennifer Granholm. She said the US could free crude oil from the government's strategic reserves – some 60 million barrels – to curb rising gasoline prices. Granholm also spoke of the possibility of placing a ban on oil exports, but senior market analyst at DNB Markets Helge Andre Martinsen noted that such a step seems “unrealistic, as it could damage the oil industry in the United States, which will also lead to a sharp rise in the price of Brent crude oil and an increase in the cost of gasoline,” the Wall Street Journal reported. As for the strategic reserves, some experts say the measure would most probably stabilize oil prices.

“The consideration of tapping reserves in the US is likely to signal that we are not going to see oil prices get out of hand,” Ed Moya, senior market analyst at Oanda Corp, told Bloomberg.

Meanwhile, some experts also see Washington’s plan to release strategic reserves as a message to the Organization of the Petroleum Exporting Countries (OPEC) and allies to add more supply to the global market. The US has repeatedly accused the group of not doing enough to restore global oil supply after the Covid-19 pandemic-induced cuts last year.

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