Oil Dips as U.S Seeks to Tackle Tight Energy Condition
Oil prices dropped on Thursday after record-high price rallies as an unexpected build in US crude oil inventories signalled declining demand in the world’s largest oil-consuming country.
International benchmark Brent crude was trading at $80.78 per barrel for a 0.37% decrease after closing Wednesday at $81.08 a barrel. American benchmark West Texas Intermediate (WTI) traded at $76.66 a barrel at the same time for a 0.99% fall after ending the previous session at $77.43 per barrel.
Thursday’s price slump was spurred by a surprise build in the US crude oil and fuel inventories, which indicates that supply is recovering and demand is falling in the country.
US commercial crude oil inventories rose 0.6% during the week ending Oct. 1, according to the latest data released by the Energy Information Administration (EIA).
Inventories increased by 2.3 million barrels to 420.9 million barrels higher than the market expectation of a 300,000-barrel rise. Gasoline inventories also increased by 3.3 million barrels to 225.1 million barrels over that period.
Both benchmarks had faced multi-year-high levels after the world’s largest oil producers failed to respond to a low supply crisis in the global markets, badly affecting world economies that recovered from demand damages due to the COVID-19 pandemic.
Brent hit $83.46 a barrel, reaching its highest level since October 2018. WTI also hit its seven-year-high level with $79.78 a barrel.
Record high prices came the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, on Monday decided to keep its output unchanged instead of ramping up its production in line with rising demand for crude oil.
High natural gas prices, which have surged 600% due to supply shortages and low production of other fuels, have spurred crude oil demand, which could act as a substitute for natural gas.
The market deemed it unlikely that the United States would release emergency crude reserves or ban exports to ease tight supplies.
The U.S. Department of Energy said all “tools are always on the table” to tackle tight energy supply conditions in the market.
The department made the comment amid questions about whether the Biden administration is considering tapping into its Strategic Petroleum Reserves (SPR) or pursuing a ban on oil exports to bring down the cost of crude oil.
Meanwhile, U.S. President Joe Biden’s national security adviser urged energy suppliers to lift flows to meet demand, saying that the United States was concerned about their failure to do so.
“Right now, it looks like the U.S. is signalling that they’re not planning just yet to tap their strategic petroleum reserves, and that’s kick-starting this rally here,” said Edward Moya, a senior market analyst at brokerage OANDA.
“This is still too early for the U.S. to consider tapping their reserves and we would see them make that decision when we’re deeper into winter and the energy crisis is really starting to become a bigger concern for growth.”
The United States has used its strategic reserves on occasion, usually after hurricanes or other supply disruptions. However, since ending a 40-year ban on crude exports in 2015, the nation has become a significant exporter and has not broached cutting exports.
Goldman Sachs said a potential SPR release, which could be up to 60 million barrels, only posed a $3 downside risk to its $90l year-end Brent price forecast.
Early session losses were also an extension of Wednesday’s near 2% drop after an unexpected rise in U.S. crude stockpiles and Russian assurances that it would boost gas supplies to Europe in response to the energy crunch and stands ready to stabilise the market.
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Earlier this week, the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to only gradually raise output, sending crude prices to multi-year highs.
Oil markets have been on a steady rise due to tight supplies worldwide as demand recovered more quickly than expected from the pandemic in big import markets like China.
In addition, major producers and the International Energy Agency believe crude demand could rise by anywhere from 150,000 to 500,000 barrels per day in the coming months as users of the natural gas switch to oil due to high gas prices.
Oil Dips as U.S Seeks to Tackle Tight Energy Condition
