Oil Extends Climb as Biden Chooses Not to Tap Reserves for Now

(Bloomberg) -- Oil advanced after the Biden administration chose not to make an immediate release of crude from the Strategic Petroleum Reserve, and an industry report showed a decline in U.S. inventories. 

West Texas Intermediate rose 0.3% after surging 2.7% in the previous session as the White House said it would not announce an SPR release on Tuesday. That decision was influenced by a government forecast that showed the global market will become oversupplied and prices will fall early next year.

Separately, the industry-funded American Petroleum Institute reported nationwide crude holdings fell by about 2.5 million barrels last week, although there was a rise at the key storage hub at Cushing, Oklahoma, according to people familiar with the data. An official tally comes later on Wednesday.

Oil surged to a seven-year high last month as economies recovered from the coronavirus pandemic and a global energy crisis aided demand, boosting U.S. gasoline prices and fanning inflation. The surge prompted President Joe Biden to weigh the merits of an emergency crude release after the Organization of Petroleum Exporting Countries and its allies refused to increase output at a faster clip. That plan appears to be off the table, at least for now.

“It’s not surprising oil prices have rebounded following reports the U.S. backed away from” an SPR release, said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd. The market is fundamentally tight, which is likely to keep upward pressure on prices, he added.

As Biden weighed tapping the SPR, there was speculation the U.S. may coordinate releases with other nations including Japan, which has also been pressing OPEC+. On Tuesday, Hikariko Ono, director general of the Economic Affairs Bureau, held a video conference with the head of the International Energy Agency to register concern over prices. On the call, Fatih Birol expressed a willingness to work with members and producers to stabilize the market.

The oil market remains backwardated, a bullish pattern in which near-term contracts trade at a premium to longer-dated ones. Brent’s prompt spread was $1.23 a barrel in backwardation compared with $1.17 a barrel a week ago.

Consumption has already jumped back to pre-pandemic levels and will go even higher next year, according to Russell Hardy, chief executive officer of Vitol Group. Supply and demand is going to be “reasonably tight” for the next 12 months and a spike to $100 a barrel is a possibility, he said on Tuesday.

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