Oil is falling as the United States postpones the replenishment of strategic reserves

LONDON (Reuters) – Oil prices fell sharply on Friday amid a decline in European bank stocks and after US Energy Secretary Jennifer Granholm said it could take several years to refill the country’s Strategic Petroleum Reserve, dampening the demand outlook.

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

Both benchmarks, which fell about 1% on Thursday, were on track to end the week slightly higher, after posting their biggest weekly decline in months last week due to banking sector turmoil and fears of a possible recession.

Banking stocks fell in Europe as Deutsche Bank and UBS Group were hit hard by concerns that the sector’s worst problems since the 2008 financial crisis were yet to be contained.

A rally in the dollar, which gained 0.6% against other currencies on Friday, also led to the sell-off. A strong dollar makes crude oil more expensive for holders of other currencies.

“Not buying SPR crude is a big blow to the outlook for oil demand,” said Stephen Brennock, an oil analyst at PVM.

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

The White House said in October that it would buy back oil from the Strategic Petroleum Reserve when prices are at or below $67 to $72 a barrel.

Granholm told lawmakers it will be difficult to take advantage of lower prices this year to add to inventories, which are currently at their lowest level since 1983 after sales directed by President Joe Biden last year.

Strong demand forecasts from China capped the declines, with Goldman Sachs saying demand for commodities is picking up in China, the world’s largest oil importer, with oil demand exceeding 16 million barrels per day.

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

That means Russia aims to produce 9.7 million bpd between March and June, according to Novak, which would be a much smaller production cut than Moscow previously indicated.

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

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