Oil Pares Gains as U.S. Hints at Actions to Quell Rising Prices

(Bloomberg) -- Oil pared gains after the U.S. said it may announce measures to ease oil and gasoline prices as soon as this week.

Futures in New York were up 0.8%, after rising as much as 1.7% earlier on Monday. U.S. Energy Secretary Jennifer Granholm said that President Joe Biden may make an announcement to address high oil and gasoline prices this week. Granholm didn’t specify any particular measures, but the U.S. has said that releasing crude from the Strategic Petroleum Reserve is one option it’s considering to cool prices.

Those comments cooled a rally fueled by the biggest increases to some of Saudi Arabia’s official selling prices in decades at the end of last week. Asian buyers will probably take their full contractual volumes of oil next month, despite the higher costs, signaling a strong market.

A U.S. release from the strategic reserve may momentarily dent prices but still wouldn’t “overshadow all the bullish factors which are supporting oil prices at the moment,” said Fiona Cincotta, senior financial markets analyst at City Index. OPEC+ sticking to moderate supply hikes and China’s strong export data underpins current prices, she said. 

Oil prices have soared this year to the highest since 2014, fanning inflation and lifting product prices, as the roll-out of vaccines boosted mobility and stoked energy demand. 

High energy prices led Biden and other consumer countries to lobby the Organization of Petroleum Exporting Countries and its allies to step up the pace of their supply output. Despite foreign pressures, the alliance chose to stick with a planned, modest hike of 400,000 barrels a day, keeping oil in the $80 range and raising the possibility of an SPR release. The Biden Administration will be scrutinizing a monthly U.S. report published on Tuesday, according to Granholm.

There is little sign of bullish sentiment dissipating in the market so far. Money managers still hold more than ten bullish bets for every bearish one in WTI, while nearby time spreads are in backwardation of more than $1 a barrel, indicating tight supply.

Meanwhile in Washington, the U.S. House of Representatives passed the $550 billion infrastructure bill, allocating billions for repairs of roads, bridges, and other major projects. Analysts see the bill as providing another upside for oil on the horizon. 

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