Oil prices tumbled Thursday on reports that the United States is considering tapping its reserves to combat a supply crisis sparked by the Ukraine war.
However, equities struggled to build on the week’s rally after Russia poured cold water in hopes that ceasefire talks were progressing, leaving the prospect of a protracted war in eastern Europe.
The conflict has already sent shockwaves through the world economy, with growth forecasts this year being lowered across the board. On Thursday, the European development bank EBRD said gross domestic product in Russia and Ukraine would contract 10 percent and 20 percent respectively this year.
WTI tumbled more than five percent at one point while Brent dropped more than four percent as reports said President Joe Biden was looking at releasing a million barrels a day for several months — totaling up to 180 million — as he tries to temper a surge in the market to more than $100.
Concerns about demand in China owing to a lockdown in Shanghai were adding to downward pressure.
The White House this month put an embargo on oil from Russia as part of a series of wide-ranging sanctions against the country for its invasion.
However, that sent prices soaring further and put added upward pressure on world inflation, which was already at multi-decade highs.
Officials said the president would make a statement Thursday on plans to cut energy costs “and lower gas prices at the pump for American families”.
Warren Patterson, at ING Groep NV, said: “Suggestions that we could see up to 180 million barrels released over several months is significant and would help to ease some of the tightness in the market.”
It would be the biggest ever release by the United States, he said.
The news comes as the International Energy Agency urges other countries to further tap their reserves.
A coordinated release earlier this year, before the war, did little to temper a rally in prices, which were being boosted by the global economic reopening and expectations for a pick-up in demand.
OPEC and other major producers including Russia are preparing for their monthly meeting later in the day where they are expected to refrain from lifting output by more than previously planned, despite the growing energy crisis.
While the drop in oil prices will be welcomed on trading floors, Asian equity markets fell after three days of healthy gains and following comments from Russian officials playing down progress in talks with Ukraine over the ceasefire.
Adding to selling pressure was data showing signs of a further slowdown in China’s manufacturing sector caused by Covid lockdowns around the country.
Tokyo, Hong Kong, Shanghai, Sydney, Mumbai, Singapore, Taipei and Bangkok retreated, though Seoul, Manila, Wellington and Jakarta edged higher.
London, Paris and Frankfurt were up in early trade.
Traders on Wednesday jumped on news that Moscow had pledged after negotiations in Istanbul to “radically” reduce its attacks.
Both sides initially said the gathering Tuesday had been productive but on Wednesday Kremlin spokesman Dmitry Peskov said: “We cannot state that there was anything too promising.”
Turkey said Thursday the foreign ministers of Ukraine and Russia could meet within two weeks.
Investors are awaiting the release Friday of US jobs data for an idea about the impact of soaring inflation and the war on the world’s top economy.
The reading could also be of particular importance regarding the Federal Reserve’s plans for monetary policy as it pivots to a more aggressive approach in a bid to staunch the surge in prices, which many fear will hamper growth.