Oil Tumbles as U.S. Piles Pressure Onto OPEC+ for More Barrels

(Bloomberg) -- Oil fell as the U.S. increased pressure on OPEC+ to boost supplies and the dollar held gains before a key Federal Reserve meeting.

West Texas Intermediate sank 1.7% after easing 0.2% on Tuesday as Brent also dropped. President Joseph Biden blamed the alliance for fueling inflation ahead of its meeting Thursday to set output policy. Separately, Secretary of State Antony Blinken pressed the United Arab Emirates for increased supply.

Later Wednesday, the Fed is expected to announce it will begin winding down the bond-buying program put in place last year to combat the fall-out from the pandemic. Ahead of that move the dollar ticked higher on Tuesday, making commodities priced in the currency more expensive for overseas consumers.

Crude has soared in 2021 as demand rebounded, draining stockpiles. At the same time, the Organization of Petroleum Exporting Countries and its allies have restored supplies taken offline last year at a gradual pace. Despite the pressure from the U.S. and other oil importers, the cartel is expected to stick to a plan to raise output by a modest 400,000 barrels a day at its meeting.

“OPEC+ staying the course is largely baked in but the market will watch out for surprises,” said Vandana Hari, founder of energy consultancy Vanda Insights. “Crude is likely to be skittish today and tomorrow,” swinging with shifts in risk appetite and data including official U.S. crude stockpile figures, she said.

Biden’s comments have fanned speculation that if OPEC+ fails to raise the pace it’s adding production, the U.S. -- possibly in coordination with other states -- may release crude from strategic reserves. National Security Adviser Jake Sullivan declined to say whether that option was being considered.   

For OPEC+, part of the rationale for the modest pace of supply hikes is that the pandemic still poses risks, with Saudi Arabia saying last month the crisis is “not necessarily over.” At present, more provinces in China are fighting Covid-19 than at any time since the pathogen first emerged in Wuhan in 2019.

In the U.S., the latest snapshot from the American Petroleum Institute gave a mixed picture, according to people familiar with the data. While nationwide oil inventories rose last week, they were lower at the key Cushing hub.

Oil markets remain backwardated, a bullish pattern marked by near-term contracts trading above those further out. Brent’s prompt spread was $1.23 a barrel, compared with from $1.34 on Monday.

©2021 Bloomberg L.P.