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OIL FUTURES: Crude prices slide amid stronger US dollar, concerns of possible SPR release

Highlights

US inflation hits 30-year high

Biden blames high energy costs

US dollar tests 16-month highs

Crude oil futures fell sharply Nov. 10 as accelerating US inflation metrics sent the dollar sharply higher and increased the likelihood the White House could tap its Strategic Petroleum Reserve to blunt rising prices.

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NYMEX December WTI settled $2.81 lower at $81.34/b and ICE January Brent declined $2.14 to $82.64/b.

US President Joe Biden blamed energy costs for Nov. 10 data showing the largest spike in US inflation in 30 years, while Democratic senators urged him to consider banning US crude exports to relieve the oil price pressures.

US consumer prices jumped 6.2% in the 12 months ending October compared with a year earlier, the largest increase since November 1990, according to the Bureau of Labor Statistics. The report's energy index jumped 30% over the period, while food prices rose 5.3%.

The US dollar rallied on the heels of the inflation report, adding pressure to crude prices. The ICE US Dollar Index surged to 94.88 in afternoon trading from 93.955 Nov. 9 and is on pace for the highest close since July 22, 2020.

Biden said reversing this economic trend was a top priority. On energy prices, he directed his National Economic Council to "pursue means to try to further reduce these costs," and asked the Federal Trade Commission "to strike back at any market manipulation or price gouging in this sector."

NYMEX December RBOB settled 7.8 cents lower at $2.2972/gal and December ULSD shed 5.6 cents to settle at $2.4521/gal.

"The dollar and Treasury yields rallied as the argument that the Fed might be making a policy mistake grows," OANDA senior market analyst Ed Moya said in a note. "It seems unlikely crude prices can break above recent highs until energy traders see whatever action will come from the Biden administration."

Analysts think an SPR drawdown is the White House's most likely option to respond to high oil prices, even though Biden has said himself that it would only curb gasoline prices by around 18 cents/gal.

S&P Global Platts Analytics' reference case still assumes a rare price-related release will not happen this year, which it says is supported by the latest short-term outlooks by the US Energy Information Administration.

The US average for regular-grade gasoline is expected to peak at $3.32/gal in November, the highest since September 2014, EIA said Nov. 9. It expects US gasoline prices to ease to $3.15/gal in December and $3.02/gal in January, with prices averaging $3/gal for the first half of 2022.

Still, Biden tapping the government oil stockpile would not be a major surprise if prices keep rising, said Paul Sheldon, the chief geopolitical adviser at Platts Analytics.

"An SPR release would hasten a transition to modest crude stock builds, which we already expect from January-May, but the price impact would be limited and temporary," Sheldon said.

Total US commercial crude stocks climbed 1 million barrels to 435.1 million barrels in the week ended Nov. 5, EIA said Nov. 10, well below the 4.2 million barrel five-year-average build. The modest build widened the inventory deficit to the five-year average to 6.5% from 5.7% the week prior.

The SPR saw a 3.15 million barrel draw to 609.4 million barrels during the period, EIA said, because of the sale of crudes unrelated to the current political moment. It was the largest one-week drawdown from the reserve since the week ended July 7, 2017, and left inventories there at the lowest level since June 2003.