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Oil futures fell Friday with strength in the U.S. dollar and the threat of a possible release of crude from the Strategic Petroleum Reserve contributing to a decline in prices for the week.
Oil prices moved lower Friday, with U.S. Energy Secretary Jennifer Granholm expected to speak at a White House press conference in the afternoon, said Phil Flynn, senior market analyst at The Price Futures Group.
That raised the possibility that the Biden administration will announce steps to confront rising gasoline prices, Flynn told MarketWatch, adding that the government may decide to release oil from the SPR or implement a ban on U.S. oil exports.
West Texas Intermediate crude for December delivery
CL00,
CLZ21,
fell 60 cents, or 0.7%, to $80.99 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark on track for a 0.3% weekly fall. January Brent crude
BRN00,
BRNF22,
the global benchmark, was down 51 cents, or 0.6%, at $82.36 a barrel on ICE Futures Europe, headed for a 0.5% weekly decline.
The prospect of a release of crude from the U.S. reserve has helped put a lid on crude prices, analysts said. Eleven Democratic senators early this week pressed the Biden administration to consider an SPR release or other measures, such as export bans.
A monthly report Thursday from the Energy Information Administration, however, was seen cooling prospects for a move after it showed the market moving back into surplus in 2022.
President Joe Biden, however, remains under pressure to address rising prices after data on Wednesday showed U.S. consumer inflation rose 6.2% year over year in October, the fastest pace in nearly 31 years. White House staff continue to debate whether to make an immediate move to lower energy prices or hold off due to worries that such efforts would conflict with Biden’s agenda on climate, trade and foreign policy, Bloomberg reported Friday.
Analysts, meanwhile, question whether an SPR release or other potential measures would have a lasting impact on prices.
“Most investors would agree that the efficacy of an SPR release or ban of exports provides the opportunity for Biden to look presidential, but most agree that market impact is likely minimal with potentially negative externalities,” said Michael Tran, analyst at RBC Capital Markets, in a note.
A ban on crude exports would considerably widen the spread between WTI and Brent crude, sending Brent prices soaring for the rest of the world, he said, while a ban on gasoline exports could strain trade relations with Mexico, which takes nearly half of the exports.
The Price Futures Group’s Flynn said an SPR release and a ban on U.S. oil exports would both fail to provide any lasting relief from high oil and gasoline prices.
A release from the reserve “will only serve to increase demand,” he said. “It will artificially lower prices in a market where the demand is insatiable and fundamentally undersupplied,” he said. A ban on U.S. oil exports, meanwhile, would serve to make U.S. production fail given that the U.S. produces light oil that is “better suited for foreign refineries.”
Traders are also focused on demand, with Friday’s University of Michigan consumer sentiment reading at a 10-year low, Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. The University of Michigan’s gauge of consumer sentiment slid to 66.8 in November, from a final October reading of 71.7.
“Coupled with inflation at a 30-year high, these could be economic headwinds going forward,” said Steeves. “On the other hand, a cold winter in the consuming regions could lift demand for heating oil and natural gas.”
Other energy futures traded on Nymex also moved lower Friday. December gasoline
RBZ21,
fell 0.4% to $2.309 a gallon and December heating oil
HOZ21,
declined by 1.1% to $2.419 a gallon. Both contracts traded lower for the week.
December natural gas
NGZ21,
traded at $4.943 per million British thermal units, down 4% in Friday dealings and poised for a weekly loss of over 10%.
Meanwhile, a strengthening dollar is also seen weighing on oil prices. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, was little changed Friday but on track for a 0.9% weekly rise. The index rose to a 15-month high after the hot inflation data pushed up Treasury yields as investors penciled in expectations for the Federal Reserve to move more aggressively to tighten monetary policy.
A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.
