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Oil futures declined on Wednesday, with U.S. prices falling below the key $80 mark, pressured by reports that a joint release of crude supplies was discussed by President Joe Biden and Chinese leader Xi Jinping in a virtual meeting earlier this week.
Prices failed to find lasting support even though government data revealed a weekly decline in U.S. crude inventories, the first in four weeks.
West Texas Intermediate crude for December delivery
CL.1,
CLZ21,
fell $1.27, or 1.6%, to $79.49 a barrel on the New York Mercantile Exchange. January Brent crude
BRN00,
BRNF22,
the global benchmark, was down 92 cents, or 1.1%, at $81.51 a barrel on ICE Futures Europe.
The South China Morning Post reported that the U.S. had asked China to release oil reserves to help tamp down international prices and that the topic came up during the Biden-Xi virtual summit late Monday.
Investors in recent weeks have been weighing the prospect of a potential release from the Strategic Petroleum Reserve by the Biden administration.
Read: Why tapping the SPR is one of many ‘bad’ options to ease gasoline prices
“The hesitation appears to be because the market outlook is more comfortable in 2022, while an SPR release would also only offer short-term relief to the market,” said Warren Patterson, head of commodities strategy at ING, in a note.
“In addition, if the U.S. were to make an SPR release, there is always the potential for OPEC+ to counter this by delaying their supply increases,” he said.
Oil prices briefly pared, then extended their losses after the Energy Information Administration reported Wednesday that U.S. crude inventories fell by 2.1 million barrels for the week ended Nov. 12.
On average, analysts polled by S&P Global Platts forecast a 2.5 million-barrel decrease. The American Petroleum Institute on Tuesday reported a 655,000-barrel rise, according to sources.
The crude supply decline came as U.S. refiners processed more crude than expected, said Peter McNally, vice president and global lead for industrial materials and energy at Third Bridge.
“U.S. imports of crude oil were essentially unchanged, although exports reached their highest levels since mid-summer, he said. “Production of crude oil from domestic sources continued to move sideways and remains more than 1.5 [million barrels per day] below the pre-COVID peaks. “
McNally said Third Bridge doesn’t expect much change in the pace of domestic oil output as U.S. oil producers “lack incentives to drill in the current environment.” “U.S. crude stockpiles are now more than 11% below where they stood at this point last year,” said McNally.
As for oil prices, they are likely to trade in the $80 to $100 range next year, said Jay Hatfield, chief executive officer, founder and portfolio manager at Infrastructure Capital Management.
That’s based on “strong demand from an increase in international travel, fuel switching from natural gas…and continued production restraint” from OPEC+ and the United States.
The EIA also reported weekly inventory declines of 700,000 barrels for gasoline and 800,000 barrels for distillates. The S&P Global Platts survey expected supplies to decrease by 100,000 barrels for gasoline and 1.3 million barrels for distillates. The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 200,000 barrels for the week.
On Nymex, December gasoline
RBZ21,
fell 2.2% to $2.298 a gallon and December heating oil
HOZ21,
lost 1.6%, to $2.391 a gallon.
Natural-gas futures X ahead of Thursday’s weekly EIA update on U.S. supplies of the fuel. December natural gas
NGZ21,
traded at $4.91 per million British thermal units, down 5.2%.
