Oil rallies after U.S. says it won’t tap strategic crude reserves

(Bloomberg) --Oil rebounded after the U.S. Energy Department said it has no plans “at this time” to tap into the nation’s oil reserves to help quell rising fuel prices.

Futures in New York closed 1.1% higher after earlier falling as much as 3.2% on Thursday. A Financial Times report that Energy Secretary Jennifer Granholm was considering releases from the Strategic Petroleum Reserve had sent prices lower. The market’s focus has now shifted back to a global natural gas shortage that’s set to boost the use of crude oil to generate power this winter.

“What the market is really worried about is the gas to oil switch and if we continue to see this tightness in the gas markets around the world,” said Hansen

Crude has rallied more than 15% since mid-August following an increase in consumption as countries emerge from the worst of the pandemic. The energy crunch from Europe to Asia also raised the prospect of greater demand for oil ahead of winter at a time when OPEC+ producers decided to only gradually add back oil supplies to the market.

President Biden’s administration become more vocal about its growing concerns that high energy prices could derail the global recovery market. In addition to Granholm’s comments on Wednesday, the White House has been in communication with OPEC, pushing them to boost their output.

“The key to remember is that the Biden administration is very keen on having low gasoline prices for consumers,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg Television interview. “So if prices continue to go up and overheat, then they will be putting pressure on OPEC.”

Prices:

• West Texas Intermediate crude for November delivery advanced 87 cents to settle at $78.30 a barrel
• Brent for December settlement rose 87 cents to settle at $81.95 a barrel

It is “only a matter of time” before OPEC+ accelerates supply increases, especially if oil remains over $80/bbl, according to Citigroup Inc.

The group’s decision to stick with an increase of only 400,000 barrels a day for next month was clearly an effort to maximize short-term revenues as demand escalates and inventories drop, analysts said in a note on Wednesday.