By Barani Krishnan

Investing.com -- Will big reserve releases bring crude prices down in a severely undersupplied market?

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 prices tumbled for a second day in a row after the Paris-based International Energy Agency, or IEA, said it will release 120 million barrels from the reserves of its members into the open market to bridge a global supply shortage.

“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.

London-traded Brent, the global oil benchmark, settled down $5.57, or 5.3%, at $101.07 per barrel. Its low for the session was $100.68.

Brent fell 13% last week for its biggest weekly decline since April 2020 after finishing the first quarter up 39%, demonstrating the recent volatility in oil.

New York-traded U.S. crude benchmark West Texas Intermediate, or WTI, settled down $5.73, or 5.6%, at $96.23, after an intraday low of $95.86.

WTI broke the key $100 support last week, falling about 13% just like Brent, for its worst week since April 2020. That came despite a 33% rally in the first quarter.

The IEA announcement came after the Biden administration said last week it will release 180 million barrels of its own from the U.S. Strategic Petroleum Reserve over the next six months, averaging one million barrels per day.

According to the IEA on Wednesday, half of the 120 million barrels from its release will come from the United States. Sources familiar with the situation said the 60 million barrels of the U.S. share were already included in the 180 million barrels release cited by the Biden administration last week.

That effectively meant that a new 60 million barrels would come from non-U.S. members of the IEA.

Cumulatively, some 240 million barrels would be landing on the open market for oil over the next six months, or 1.33 million barrels per day.

That would be more than triple the monthly increments of 400,000 barrels per day that global oil producers under the Saudi-controlled and Russian-steered OPEC+ alliance have been doing.

OPEC+ is keeping at least four million barrels of regular daily supply needed by consumers off the market to ensure that crude prices stay at above or around $100 per barrel, which has been the norm since the U.S. and EU sanctions imposed on Russia for its Feb. 24 invasion of Ukraine. Separately, the delivery of some 3.0 million barrels per day of Russian oil exports is being delayed by sanctions, with some being denied altogether.

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 climbed by 2.421 million barrels during the week ended April 1, compared with the average draw of 2.056 million barrels forecast by analysts.

Distillate stockpiles, which include diesel and heating oil, rose by 771,000 barrels in the week against expectations for a draw of 0.819 million barrels. Prior to the past two weeks, distillates had been the strongest growth component of the U.S. oil complex for months, seeing virtually non-stop inventory declines since early January.

Inventories of gasoline were among the bullish data reported by the EIA for last week, with the agency citing a draw of 2.04 million barrels versus forecasts for a build 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.

Aside from the gasoline stockpile slide and rise in exports, the EIA data for last week was overwhelmingly bearish. That included a 1.7-million-barrel build at the Cushing, Oklahoma hub, which acts as delivery point for the WTI.

WTI hit a 14-year high of $130 while Brent surged to almost $140 two weeks after the Ukraine invasion. Consequently, U.S. pump prices of gasoline hit record highs above $4.35 per gallon.

Both WTI and Brent have come off their highs since, as the Biden administration steadily released oil each week from the U.S. reserve. Last week alone, some 3.7 million barrels were released.

Despite this, gasoline at the pump has held above $4 per gallon on the average. Analysts say the inflation fueled by gasoline, which was about $1.50 higher than a year ago, could eventually lead to demand destruction for oil.

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