Oil Erases Gains as U.S. Fed Chair Recommends Faster Tapering

(Bloomberg) -- Oil edged lower after Federal Reserve Bank of St. Louis President James Bullard said the central bank should speed up its reduction of monetary stimulus in response to a surge in U.S. inflation.

Futures were slightly lower after earlier climbing as much as 1.2% on Tuesday. Prices have rebounded this year as the global economic recovery bolsters demand, and U.S. President Joe Biden is under pressure to tap the country’s Strategic Petroleum Reserves. In a virtual summit with Chinese leader Xi Jinping, both spoke of the importance of taking measures to address global energy supplies. 

The International Energy Agency said Tuesday that market tightness is starting to ease as production recovers in the U.S. and elsewhere. Some consuming nations have also questioned whether a co-ordinated sale of strategic reserves by major oil users would help. 

“There is a good chance that in coming months the market will be left to its own devices,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “Louder calls on releasing SPR or pushing OPEC+ to increase supply will remain on the level of rhetoric.”

The Organization of Petroleum Exporting Countries said it expects the global oil market to move into oversupply as early as next month.

Since hitting a seven-year high above $85 last month, oil has drifted lower amid uncertainty over U.S. policy and the possibility that a resurgence in the pandemic may crimp demand. OPEC and its allies are restoring supplies halted last year, but only gradually.

Meanwhile, Jeremy Weir, chief executive officer of energy trader Trafigura Group, added his name to a roster of industry heavyweights predicting further price gains. Crude above $100 a barrel is possible given the “very tight oil market,” he said during the FT Commodities Asia Summit. 

In a sign of strength in the physical market, the spot differential for Russian ESPO crude to be shipped in January rose by 50 cents a barrel over last month, according to traders who asked not to be identified. Earlier this week, ONGC Videsh Ltd. also sold Sokol crude at the highest level since January 2020.

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