By Barani Krishnan
Investing.com -- U.S. crude hit the lower end of $80 per barrel Tuesday amid reports that the Biden administration planned to sell more of the nation’s emergency oil reserves to counter output cuts announced by producer alliance OPEC+ that could hurt the president and his party in elections next month.
West Texas Intermediate crude, the benchmark for U.S. crude, had surged to nearly $94 by October 10, after the production cut of 2 million barrels per day from November onwards that OPEC had announced on October 5. Prior to that, WTI had hit an 8-month low beneath $77 per barrel.
In Tuesday's trade, WTI settled at $82.82, down $2.64, or 3.1%, on the day. The session low was $81.33, versus the high of $93.48 it hit on Oct 10 in response to OPEC+’s planned output cuts.
London-traded Brent oil settled Tuesday's session at $90.03, after an intraday low at $88.81. Brent hit $98.75 on Oct. 10.
The OPEC+ driven rally of the past two weeks had started pushing up pump prices of U.S. fuel as well, which was bad news for President Joe Biden and Democrats ahead of the November 8 mid-term election. The oil producing alliance is led by Saudi Arabia, with Russia as its biggest ally — neither of whom are big fans of Biden.
Both Bloomberg and Reuters reported on Tuesday, citing sources, that the Biden administration plans to sell an additional 26 million barrels from the Strategic Petroleum Reserve for fiscal year 2023. Before that, the administration has another 14 million barrels to clear from the so-called SPR under a campaign to sell 180 million barrels over six months.
SPR inventories have fallen to their lowest since 1984 from the administration’s aggressive moves to bring pump prices of gasoline down before the election.
On Tuesday, the average pump price was at $3.87 per gallon versus $3.92 a week ago. In mid-June, it was at a record high of $5.
Biden’s critics from the Republican party have accused him of putting the nation’s emergency oil reserve at risk for the sake of trying to hold on to the Democrats’ control of the U.S. Congress and Senate.
The SPR is typically used for mitigating oil shortages on the domestic market and not for reducing energy prices.
Biden has, however, argued that the welfare of Americans, struggling with the worst inflation in four decades due to high energy prices, is a bigger priority now.
The president and his advisors have also fumed at the so-called coercion played by the Saudis in getting some of the 23 nations in OPEC+ to do a larger cut than needed. Biden has said there will be “consequences” for Riyadh over its action, particularly in support of Russia, which the U.S. and its allies have been trying to punish with lower revenues from oil amid Moscow’s war with Ukraine. The Saudis and rest of OPEC+ have done their best over the past fortnight to deny Biden’s claims that the production cut was politically-motivated.
Uncertainty about fuel demand in China, the world’s largest oil importer, also weighed on crude prices Tuesday. China's fuel demand outlook weighed on sentiment after the world's top crude oil importer delayed release of economic indicators originally scheduled to be published on Tuesday. No date was given for a rescheduled release.
Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.
The API will release at approximately 16:30 ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Oct 14. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.
For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile build of 1.55 million barrels, adding to the 9.88-million barrel rise reported during the week to Oct 7.
On the gasoline inventory front, the consensus is for a draw of 2 million barrels over the 2.02-million barrel growth in the previous week.
With distillate stockpiles, the expectation is for a further drop of 2.18 million barrels after the prior week’s slump of 4.85 million.