NEW YORK: Oil prices fell on Wednesday, continuing a recent streak of weakness, after OPEC and the International Energy Agency warned of impending oversupply and as COVID-19 cases in Europe increased the downside risks to demand recovery.
The market shook off an unexpected decline in U.S. crude oil stockpiles, as traders are starting to expect supply will rise before long, and as the Biden Administration tries to intervene more aggressively to lower fuel costs.
Brent crude futures fell $1.36, or 1.7%, to $81.05 a barrel by 12:18 p.m. EST (1718 GMT). U.S. West Texas Intermediate (WTI) crude futures fell $1.87, or 2.3%, to $78.88 a barrel.
The IEA and the Organization of the Petroleum Exporting Countries both said this week that more supply could be on the way in coming months, with OPEC and its allies - known as OPEC+ - seeking to maintain a steady increase in output. Other nations, including the United States, have called for OPEC+ to boost output more swiftly.
On Tuesday, OPEC Secretary General Mohammad Barkindo said the group sees signs of an oil supply surplus building from next month adding its members and allies will have to be “very, very cautious.”
New waves of COVID-19 cases in Europe have driven some governments to reimpose restrictions, including Austria, which has ordered a lockdown on unvaccinated individuals.
“The impact has thus far been negligible,” oil brokerage PVM’s Stephen Brennock said. “That being said, the risk is there for the situation to escalate and mobility levels to be severely undermined in the coming months,” he added.
The IEA said U.S. oil production is expected to rise again in 2022, accounting for about 60% of its forecast of 1.9 million barrels per day (bpd) for non-OPEC supply growth. Latest weekly data showed U.S. output dipped to 11.4 million bpd, though these figures are rounded off and volatile.
U.S. crude oil inventories fell by 2.1 million barrels last week, the latest government data showed, running against analyst expectations for a build of 1.4 million barrels.
The high cost of fuel prices is a growing concern for the Biden administration, which on Wednesday asked the Federal Trade Commission to investigate the growing gap between the cost of unfinished gas and what consumers are paying at the pump.
The United States has considered an emergency release of oil from the U.S. Strategic Petroleum Reserve (SPR), though the SPR is generally used during natural disasters or supply disruptions usually caused by wars.
The United States currently has discretion to sell some 18 million barrels from the SPR thanks to previous Congressional approval in years past. Analysts have said the White House could speed up those sales rather than declare an emergency.
“With the mechanism for this sale already in place, with broad discretion from the legislation on timing, and without the risk of alienating IEA allies, accelerating this 18 mb of mandated sales may be the easiest of the options the White House has,” said J.P. Morgan analysts in a Wednesday note.
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