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Futures Movers: Oil futures fall sharply as Biden administration seeks ways to tamp down prices

Oil futures declined on Wednesday, with U.S. prices falling below the key $80 mark, as President Joe Biden sought ways to lower the price of gasoline for U.S. consumers.

Reports that a joint release of crude supplies was discussed by Biden and Chinese leader Xi Jinping in a virtual meeting earlier this week led to sharp losses for oil Wednesday.

Prices failed to find lasting support even though government data revealed a weekly decline in U.S. crude inventories, the first in four weeks.

Despite the bullish Energy Information Administration report, “the market reacted negatively as it assesses potential response from the Biden Administration,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

“The Biden administration has clearly stated its desire to seek lower oil prices, and the market is evaluating what the administration can do to contain prices, given very limited tools in the administration’s arsenals,” he said. “Biden can influence the market with policies, such as accelerating the nuclear agreement with Iran, granting a temporary waiver to Venezuela, flooding the market with oil from strategic reserves or retracting the drilling ban on federal lands,” he said.

The South China Morning Post reported that the U.S. had asked China to release oil reserves to help tamp down international prices and that the topic came up during the Biden-Xi virtual summit late Monday.

“Coordinating with China to flood the market with strategic reserves hardly fools anyone and does not excite the bear case,” said Raj. “Just flowing oil from one tank owned by the government to another tank owned by private companies doesn’t change oil supply or demand, and is usually ignored by the market.”

““Just flowing oil from one tank owned by the government to another tank owned by private companies doesn’t change oil supply or demand, and is usually ignored by the market.””

— Manish Raj, Velandera Energy Partners

Also on Wednesday, Biden asked Federal Trade Commission Chair Lina Khan in a letter to immediately “consider whether illegal conduct is costing families at the pump.”

Biden’s publicly announced instruction to the FTC is a “textbook example of ‘Market Signaling’ taught in economics classes at business schools — a warning sign to oil executives that they should review practices within their own organizations,” said Raj.

“If Biden had indeed known of any actual illegal practices, the FTC would already have been investigating undercover, and there would have been no public announcement,” he said. “The publicly announced rhetoric is unlikely to yield any concrete results, since no particular company has the means, even if they are motivated, to control oil supply or demand.”

Against that backdrop, West Texas Intermediate crude for December delivery
CL.1,
-3.50%

CLZ21,
-3.50%

fell $1.66, or 2.1%, to $79.10 a barrel on the New York Mercantile Exchange. January Brent crude
BRN00,
-3.05%

BRNF22,
-3.05%
,
the global benchmark, was down $1.23, or 1.5%, at $81.20 a barrel on ICE Futures Europe.

Investors in recent weeks have been weighing the prospect of a potential release from the Strategic Petroleum Reserve by the Biden administration.

Read: Why tapping the SPR is one of many ‘bad’ options to ease gasoline prices

“The hesitation appears to be because the market outlook is more comfortable in 2022, while an SPR release would also only offer short-term relief to the market,” said Warren Patterson, head of commodities strategy at ING, in a note.

Oil prices briefly pared, then extended their losses after the EIA reported Wednesday that U.S. crude inventories fell by 2.1 million barrels for the week ended Nov. 12.

On average, analysts polled by S&P Global Platts forecast a 2.5 million-barrel decrease. The American Petroleum Institute on Tuesday reported a 655,000-barrel rise, according to sources.

The crude supply decline came as U.S. refiners processed more crude than expected, said Peter McNally, vice president and global lead for industrial materials and energy at Third Bridge.

“U.S. imports of crude oil were essentially unchanged, although exports reached their highest levels since mid-summer, he said. “Production of crude oil from domestic sources continued to move sideways and remains more than 1.5 [million barrels per day] below the pre-COVID peaks. “

McNally said Third Bridge doesn’t expect much change in the pace of domestic oil output as U.S. oil producers “lack incentives to drill in the current environment.”

As for oil prices, they are likely to trade in the $80 to $100 range next year, said Jay Hatfield, chief executive officer, founder and portfolio manager at Infrastructure Capital Management.

That’s based on “strong demand from an increase in international travel, fuel switching from natural gas…and continued production restraint” from OPEC+ and the United States, he said.

The EIA also reported weekly inventory declines of 700,000 barrels for gasoline and 800,000 barrels for distillates. The S&P Global Platts survey expected supplies to decrease by 100,000 barrels for gasoline and 1.3 million barrels for distillates. The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 200,000 barrels for the week.

On Nymex, December gasoline
RBZ21,
-3.55%

fell 2.2% to $2.298 a gallon and December heating oil
HOZ21,
-2.92%

lost 1.8%, to $2.386 a gallon.

Natural-gas futures declined ahead of Thursday’s weekly EIA update on U.S. supplies of the fuel. December natural gas
NGZ21,
-5.45%

traded at $4.939 per million British thermal units, down 4.6%.

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