Oil prices jump as Biden’s gasoline-relief plan looks less likely
(Bloomberg) --Oil jumped on speculation that the Biden administration may pull the plug on any plans to release crude from the nation’s emergency reserves after a U.S. energy report showed supplies rising next year.
Futures in New York rose as much as 2.6% on Tuesday. The Short-Term Energy Outlook predicted that the market will be oversupplied early next year and prices will fall in December from current levels. Markets were eagerly awaiting the report after the U.S. signaled the president would look to its data to determine how to address rising energy costs.
“The EIA report is dovish and therefore doesn’t support a US SPR release, and that, ironically, is driving prices higher,” said Giovanni Staunovo, a commodities strategist at UBS Group AG, a bank.
Oil prices have skyrocketed this year with a global economic recovery boosting consumption while crude production returns at a more modest pace. The Energy Information Administration’s view that global production growth will outpace oil consumption and ease market pressure isn’t shared universally.
Demand has already jumped back to pre-pandemic levels and is poised to go even higher early next year, said Russell Hardy, the chief executive officer of Vitol Group said. Hardy said market supply and demand is “going to be reasonably tight” for the next 12 months and a price spike to $100 a barrel is “certainly a possibility.”
The U.S. along with other consumer countries attempted to pressure OPEC+ earlier this year to quicken the return of supplies halted during the pandemic. Their refusal put the focus back on the U.S. president and the steps he can take to try and bring prices down.
“The market is clearly looking at this STEO report and determining that odds of a coordinated SPR release are shrinking,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “However, there is a political element to this issue and prices at the pump remain very high, so I would not discount this chance of SPR release entirely on this report.”
Prices:
- West Texas Intermediate for December delivery rose $2.05 to $83.98 a barrel at 2:04 p.m. in New York.
- Brent for January settlement rose $1.15 to $84.58 a barrel
Later in the day, the industry-funded American Petroleum Institute will report on weekly changes in U.S. stockpiles, including at the key Cushing storage hub. Analysts surveyed by Bloomberg estimate a crude stockpile increase of 1.6 million barrels last week.
Official data last week showed oil inventories at the delivery point for U.S. futures at a three-year low, but flows on a major pipeline toward the hub are rising. The U.S. government will release its weekly tally on Wednesday.
