EIA says tapping U.S. crude reserve would have limited economic effect

(Bloomberg) - Oil edged up after the Energy Information Administration said the impact of a potential release from U.S. emergency crude reserves would only be short-lived.

Futures fluctuated between gains and losses in a choppy trading session on Tuesday. The EIA said the impact on oil prices after releasing crude from strategic reserves would only be temporary, echoing several market analysts. Meanwhile, natural gas futures jumped on gas-to-oil switching concerns after Russia’s controversial pipeline, Nord Stream 2, was delayed.

“We’re still on the cusp of winter, which is the peak demand season and there’s still a bullish undertone to the market,” said John Kilduff, founding partner at Again Capital LLC. “It’s a tight set-up and still vulnerable to some upside if they don’t come through with the SPR release.”

Since hitting a seven-year high above $85 last month, oil has drifted lower amid uncertainty over U.S. policy and the possibility that a resurgence in the pandemic may crimp demand. OPEC and its allies are restoring supplies halted last year, but only gradually.

With energy prices rising, U.S. President Joe Biden has been under pressure to tap the country’s emergency crude reserves. While the U.S. has joined countries including India and Japan over concerns of supply tightness in the market, India’s Oil Minister Hardeep Singh Puri said that strategic oil reserves were intended for “force majeure situations” such as natural disasters versus short-term solutions for price increases.

Meanwhile, the International Energy Agency said Tuesday that market tightness is starting to ease as production recovers in the U.S. and elsewhere. Some consuming nations have also questioned whether a co-ordinated sale of strategic reserves by major oil users would help.

Prices:

• WTI for December delivery rose 50 cents to $81.36 a barrel at 12:30 p.m. in New York
• Brent for January settlement increased 83 cents to $82.88 a barrel

Natural gas prices jumped to a three-week high as a German regulator suspended Nord Stream 2 pipeline’s certification. The suspension will allow time for Nord Stream 2 AG, the operator of the pipeline owned by Gazprom PJSC, to set up a German subsidiary in a bid to meet European Union rules requiring gas producers to be legally separate from entities transporting the fuel.

Earlier, Federal Reserve Bank of St. Louis President James Bullard said that he thinks the Federal Reserve should go in a more hawkish direction to manage inflation. The pullback of support for the economy would lead to a stronger dollar, which would likely weigh on commodities.