Oil rises again as market casts doubt over effectiveness of strategic reserve release

Oil prices continued to be under the spotlight as a US-led release of oil from strategic reserves failed to dampen commodity price inflation. Brent Crude advanced 0.5% to $82.70, extending a 3.3% rise yesterday.

Strategic reserves are meant to be untouched unless there is a real shortage of oil, and there is certainly no emergency at present. Governments shouldn’t be dipping into them to try and control the market price. Also, the amount released is very small in the bigger scheme of things.

“The move might suggest that governments are prepared to release more reserves, which could send a message to the oil market that extra supplies could be available at the click of a finger which could cap any large increases in the oil price temporarily,” says Russ Mould, investment director at AJ Bell.

“However, any oil taken from strategic reserves will have to be replaced at some point soon, and potentially at a higher price, so it’s not as if governments can sit back and relax.

“For now, the actions were enough to give support to shares in Royal Dutch Shell and BP, which in turn helped to lift the FTSE 100 by 0.5% to 7,302. Miners and construction companies were also in vogue. That put the FTSE 100 at a one-week high.

“Elsewhere on the UK market, Johnson Matthey suffered a £314 million impairment charge linked to its decision to exit the electric vehicle battery space. However, it did recognise a gain of £44 million relating to damages and interest from a company found to have unlawfully copied one of Johnson Matthey’s technology designs. That’s a welcome reward, but it doesn’t make up for the fact that Johnson Matthey is now under considerable pressure to make hydrogen its new growth engine, now that the battery technology business is being wound down or sold.

“Animal genetics group Genus suffered another setback, triggering a 10% slump in its share price. A drop in Chinese pig prices has hurt animal producers in the country and left them unprofitable, which in turn has dampened demand for Genus’ porcine genetics.”