Oil Heads for the Worst Run Since March as Biden May Intervene

(Bloomberg) -- Oil headed for its longest run of weekly losses since March as President Joe Biden kept investors guessing about whether he’ll act to tame prices that have helped to stoke a surge in U.S. inflation, hurting consumers.

West Texas Intermediate fell 0.7%, putting crude on course for a third weekly fall, with added headwinds from a stronger dollar. Biden is weighing moves including a release of oil from the Strategic Petroleum Reserve to try to bring down the cost of gasoline at the pump, which has hit a seven-year high.

For several weeks, a small group of top aides has discussed possible moves, according to people familiar with the matter. Consensus has been elusive, with some Energy Department officials pushing back against tapping the SPR while White House aides lobby for a release, or even halting U.S. crude exports.

Oil has marched higher this year as consumption rebounded from the impact of the pandemic, contributing to the fastest U.S. consumer price inflation in decades. Facing rising political pressure to act, Biden is weighing his options for intervention after the Organization of Petroleum Exporting Countries and its allies rebuffed his call to boost production at a faster clip.

The challenge facing Biden over gasoline costs is particularly apparent in California, the state where drivers typically pay more for the fuel than anywhere else in the U.S. Retail prices now average $4.65 a gallon, just 2 cents shy of the record that was set in 2012, according to AAA data. 

Still, beyond the U.S. there are some areas of weakness with a resurgence in Covid-19 cases in Eastern Europe. In Asia, officials in Beijing are asking for events to be moved online as a cluster grows. In addition, the Chinese economy likely weakened last month, with little sign it’s bottoming out. 

“The focus will return to demand,” said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “There are some headwinds coming, including increasing restrictions in key markets in Eastern Europe and China amid rising coronavirus cases, keeping prices volatile.”

Oil’s drop has come as a gauge of greenback heads for a 1% weeky gain, the most since August, on concern that rising U.S. inflation would warrant earlier interest rate hikes from the Federal Reserve. A stronger dollar makes raw materials priced in the currency less attractive for overseas buyers.

While advocating a cautious approach to the restoration of supply, OPEC has struggled to meet its modest output growth targets. Its production expanded by 217,000 barrels a day in October, according to a monthly report. That’s less than its share of the 400,000 barrel-a-day monthly hike agreed by OPEC+.

The market remains backwardated, a bullish pricing pattern marked by near-term prices trading at a premium to longer-dated ones. Brent’s prompt spread was $1.05 a barrel in backwardation, compared with $1.08 on Monday.

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