Oil Tumbles on U.S. Reserve Draw, Biden’s New Vow to Crackdown on High Prices

(Updates with settlement prices)

By Barani Krishnan

Investing.com - Oil prices tumbled anew on Wednesday after data showed a draw down of 3.2 million barrels last week from the U.S. Strategic Petroleum Reserve amid a fresh call by President Joe Biden on regulators to crackdown against “illegal” collusion behind high energy prices.

Cautions this week by the Paris-based International Energy Agency of higher global crude supply in the fourth quarter, and by European health authorities of another COVID-19 spike, added to the bearish mood in oil.

The Energy Information Administration’s Weekly Petroleum Supply-Demand report released on Wednesday showed that inventory levels of the SPR had fallen to 606.1 million barrels at the end of Nov. 12, from 609.4 million during the Nov 5 week.

The White House had been mulling use of the SPR for weeks now in a bid to cool U.S. pump prices of gasoline, which have risen by 30% to as much 60% this year to retail between $3.40 and $4.05 a gallon in the various states across the country. California, for instance, had record highs above $4.60 a gallon this week.

It is not known if the sharp drop in the SPR stockpile cited by the EIA for last week was a direct consequence of the policy being considered by the White House. 

SPR releases are done at times to relieve short supplies from events such as hurricanes.  And the United States has had some real debilitating storms this year, particularly August's Hurricane Ida, which shut down large portions of oil production and refining for weeks on end.

But the oil market did not miss making a connection between the SPR release and Biden’s battle against oil and gas companies. which he has accused of price gouging.

West Texas Intermediate, the U.S. crude benchmark, settled down $2.40, or almost 3%, at $78.96 per barrel. Week-to-date WTI was down 4%, after another losing 4% in three prior weeks. Before that, the U.S. crude benchmark had hit seven-year highs above $85 in mid-October.

London-traded Brent crude, the global benchmark for oil, finished the day down $2.15, or 2.6%, at $80.28. It briefly fell below the key $80 mark, with a session low of $79.78. Week-to-date, Brent was down 2.52 on the week after losing 4% in three previous weeks. Prior to that, the global benchmark scaled a three-year high above $86.

Wednesday’s market slump came despite a U.S. crude stockpile drawdown of 2.1 million barrels for last week, against industry forecasts for a drawdown of 1.2 million. 

Stockpiles of gasoline and  distillate products also dropped during the week  in review, resulting in what would typically have been a bullish market for oil.

The SPR drawdown was reported on the heels of a letter Biden sent out to the U.S. Federal Trade Commission, where he urged immediate action against oil and gas firms for what he branded as “anti-consumer behavior."

“I’m writing to call your attention to mounting evidence of anti-consumer behavior by oil and gas companies,” Biden said in his letter to Federal Trade Commissioner Lina Khan. “The bottom line is this: gasoline prices at the pump remain high, even though oil and gas companies’ costs are declining.”

He added that the FTC had the authority to investigate whether “illegal conduct” was costing American families more than what they should be paying at the pump. “I believe you should do so immediately.”

Despite the slump in oil prices over the past 3-½ weeks, WTI remains up 60% on the year. Brent shows a 55% gain since the end of 2020.

Oil prices rose with little pause in seven previous months as the OPEC+ producing alliance repeatedly rebuffed calls from the United States and other consuming countries for more supply to match demand increasing from the global economy’s recovery from the coronavirus pandemic.

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