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.
During a White House press conference Friday, U.S. Press Secretary Jen Psaki said the U.S. continues to look at “every tool in our arsenal” to lower gasoline prices, and has taken a range of actions, including engaging with entities abroad such as the Organization of the Petroleum Exporting Countries. “What this tells us is that behind the scenes in the White House, they’re not quite sure what to do,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. He 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,” Flynn said. A ban on U.S. oil exports, meanwhile, would serve to make U.S. production fall given that the U.S. produces light oil that is “better suited for foreign refineries.”
West Texas Intermediate crude for December delivery fell 80 cents, or 1%, to settle at $80.79 a barrel on the New York Mercantile Exchange. The move marked a third-weekly decline in a row for the U.S. benchmark, which lost 0.6% this week, according to Dow Jones Market Data. January Brent crude, the global benchmark, lost 70 cents, or 0.8%, at $82.17 a barrel on ICE Futures Europe, for a 0.7% 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. 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. 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 slide 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.”
Meanwhile, a strengthening dollar was also weighing on dollar-denominated prices for oil. The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was on track for a 0.9% weekly rise.
Looking ahead, focus will be on whether or not OPEC+ sticks to its plan for increasing output by 400,000 barrels per day each month or slows those increases down, said Tyler Richey, co-editor at Sevens Report Research. “The former would likely cause some price weakness, while the latter would support a continue rally across the energy space.”