HOUSTON (Reuters) – U.S. oil prices fell 7% to close just above $100 on Thursday as President Joe Biden announced the largest-ever release of the U.S. Strategic Petroleum Reserve and called on oil companies to increase drilling to boost supplies.

West Texas Intermediate futures for May delivery settled down $7.54, or 7%, at $100.28 a barrel, after touching a low of $99.66.

Brent crude futures for May, which expired on Thursday, closed down $5.54, or 4.8 percent, at $107.91 a barrel. The most active June futures contract was down 5.6% to $105.16, after dropping $7 earlier in the session.

Both benchmarks posted their highest quarterly percentage gains since the second quarter of 2020, with Brent up 38% and WTI up 34%, mainly helped by the February 24 Russian invasion of Ukraine that Moscow calls a “special operation”.

“This is a market where every barrel counts and (the SPR release) is a significant amount of oil that will be on the market for an extended period of time,” said John Kilduff, partner at Again Capital LLC.

Biden’s release of 180 million barrels equals about two days of global demand, the third time Washington has tapped the strategic reserve in the past six months. Read more

The United States will release 1 million barrels per day of crude oil for six months from the Strategic Petroleum Reserve starting in May, Biden said, adding that 30 million to 50 million barrels of oil could be released in addition to allies and partners. Read more

“We need to increase supply … Oil companies based on idle wells or unused lease contracts have to start production or pay for their inaction,” he said. Read more

Other members of the International Energy Agency may also release barrels to make up for lost Russian exports after that country was hit with severe sanctions for its invasion of Ukraine.

A spokesman for New Zealand’s energy minister said member states of the International Energy Agency will meet on Friday at 1200 GMT to decide on a possible mass release of oil.

Any SPR release could also be a sign that Washington does not expect a quick solution to the crisis in Ukraine, which has slashed oil supplies, said Susanna Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“Obviously trying times call for desperate action, and it is clear that the Biden administration believes that the sharp rise in oil prices justifies the move to affect the nation’s emergency supplies,” Streeter said.

Goldman Sachs analysts said the move would help the oil market rebalance in 2022 but it is not a permanent solution.

“This will, however, remain a statement for oil stocks and not a continuous source of supply in the coming years. This release will therefore not resolve the structural supply deficit for years in the making,” they said.

Analysts also pointed to low liquidity in the market causing huge price movements.

“We’ve seen dwindling open interest and dwindling volumes. A weak market is a volatile market, and you react very well to these various developments. To the point where we gain or lose barrels, you get a very, very big reaction,” Kilduff said.

Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, including Russia, better known as OPEC+, agreed at a meeting on Thursday to stick to its current agreement and increase the production target in May by 432,000 barrels per day.

Tamas Varga said: “In light of developments during the night, it appears that the OPEC + decision is not an event. An increase of 432,000 barrels per day was expected and included in the price. The decision will be met with disappointment by the consuming countries.” PVM Oil Associates.

Prices also fell on fears of lower demand in China as Shanghai prepares to expand its COVID-19 lockdown.

Additional reporting by Florence Tan and Isabel Kwa in Singapore; Editing by Margarita Choi, David Gregorio and Nick McPhee

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