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Futures Movers: Oil logs lowest finish since early October as Biden administration seeks ways to tamp down prices

Oil futures dropped on Wednesday to their lowest settlement since early October, 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. Biden has also asked the Federal Trade Commission to investigate whether illegal conduct has led to the rise in retail gasoline prices.

Prices failed to find 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. 

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.”

However, West Texas Intermediate crude for December delivery
CL.1,
-2.85%

CLZ21,
-2.85%

fell $2.40, or 3%, to settle at $78.36 a barrel on the New York Mercantile Exchange. That was the lowest front-month contract finish since Oct. 7, according to Dow Jones Market Data.

January Brent crude
BRN00,
+0.37%

BRNF22,
+0.37%
,
the global benchmark, lost $2.15, or 2.6%, at $80.28 a barrel on ICE Futures Europe, the lowest since Oct. 1.

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

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.

“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,” he said. He also 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.”

Oil prices 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,
-2.44%

fell nearly 3% to $2.28 a gallon and December heating oil
HOZ21,
-2.30%

lost 2.7%, to $2.364 a gallon.

Crude exports rose by 573,000 to about 3.63 million barrels in the latest week, while oil stocks in the SPR stood at 606.1 million barrels, down 3.3 million from a week earlier, EIA data showed.

U.S. crude exports were at their strongest since the week ending July 9, Troy Vincent, market analyst at DTN, told MarketWatch. “The strength in exports should be expected given that much of the released SPR volume is likely to make its way to refiners abroad,” he said, as the grades of oil in the reserve are “not generally sought by U.S. Gulf Coast refiners.”

Natural-gas futures declined ahead of Thursday’s weekly EIA update on U.S. supplies of the fuel. December natural gas
NGZ21,
-6.43%

settled at $4.816 per million British thermal units, down 7%.

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