Oil plummets as US holds back replenishment of strategic reserve

LONDON, March 24 (Reuters) – Oil prices fell sharply on Friday amid falling European bank shares and after U.S. Energy Secretary Jennifer Granholm said it could take years to fill the country’s strategic petroleum reserve (SPR), dampening the demand outlook.

Brent crude fell $2.50, or 3.3%, to $73.41[ads1] a barrel by 1031 GMT, while West Texas Intermediate US crude futures plunged $2.47, or 3.5%, to $67.49 a barrel.

Both benchmarks, which fell around 1% on Thursday, were on course to end the week slightly higher, after posting their biggest weekly declines in months last week on banking sector jitters and worries about a possible recession.

Banking shares fell in Europe with Deutsche Bank and UBS Group hit hard by worries that the worst problems in the sector since the 2008 financial crisis have yet to be contained.

A stronger dollar, which rose 0.6% against other currencies on Friday, also fueled the selloff. A stronger dollar makes crude more expensive for holders of other currencies.

“The lack of crude purchases for SPR represents a major blow to the outlook for oil demand,” said PVM Oil analyst Stephen Brennock.

“If anything, it will put even more pressure on China to do the heavy lifting on the demand side in the coming months,” he added.

The White House said in October that it would buy back oil for the SPR when prices were at or below around $67-$72 a barrel.

Granholm told lawmakers that it would be difficult to take advantage of low prices this year to boost inventories, which are currently at their lowest level since 1983 following a selloff directed by President Joe Biden last year.

Strong demand expectations from China capped the decline, and Goldman Sachs said commodity demand rose in China, the world’s biggest oil importer, with oil demand exceeding 16 million barrels per day.

Meanwhile, Russian Deputy Prime Minister Alexander Novak said a previously announced cut of 500,000 barrels per day (bpd) in Russia’s oil output would be from an output level of 10.2 million bpd in February, RIA Novosti news agency reported.

That would mean Russia would aim to produce 9.7 million bpd between March and June, according to Novak, which would be a much smaller output cut than Moscow previously suggested.

Additional reporting by Yuka Obayashi in Tokyo and Trixie Yap in Singapore; editing by Jason Neely

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