© Reuters. FILE PHOTO: A pump jack operates in front of an oil rig at sunset in an oilfield in Midland, Texas, US August 22, 2018. REUTERS / Nick Oxford
By David Gaffen
NEW YORK (Reuters) – Oil prices fell on Thursday, hit by a surge in the dollar after US President Joe Biden said his administration was looking for ways to cut energy costs amid higher inflation. important.
Brent and futures fell sharply at the end of the session as traders sold riskier assets including stocks and commodities motivated by expectations central bankers will take action to curb the rise prices.
Wednesday’s consumer inflation data showed US prices were rising at a rate of 6.2% year-on-year, their fastest rate in three decades, and could prompt the White House and the US Federal Reserve to take steps to avoid this. This boosted the dollar, which often trades the reverse of oil.
Futures contracts were down $ 2.14, or 2.5%, to $ 82.64 per barrel. This contract peaked at $ 85.50 on the session before pulling out. U.S. crude stabilized at $ 2.81, or 3.3%, at $ 81.34 after peaking at $ 84.97 a barrel, just after seven-year highs reached in recent weeks .
“There is, without a doubt, more pressure on the administration after the inflation figures today,” said Phil Flynn, senior analyst at Price Futures Group. “There are growing concerns that the Fed will have to start acting more aggressively again if rates rise, which has given the dollar a rebound.”
Inflation is rising as the economic downturn from the summer wave of COVID-19 infections wears off and supply bottlenecks persist. The Federal Reserve should try to stem the continued rise in prices, which has lasted longer than initially expected.
This triggered a rise in the dollar, which undermines the price of oil as it increases the cost to other countries as oil is largely traded in dollars.
Biden said he asked the National Economic Council to work to reduce energy costs and the Federal Trade Commission to push back market manipulation in the energy sector in a broader effort to reverse the inflation.
“Those comments sent the market down,” said Bob Yawger, director of energy futures for Mizuho in New York City.
Meanwhile, US crude inventories rose 1 million barrels in the most recent week, below estimates of a 2.1 million increase in crude inventories.
Several traders said on Thursday that prices could continue to rise over the next few months, but also noted that an ongoing rally could boost output in the shale industry which would offset demand.
The market has rallied in recent days on expectations that the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, along with other exporting allies, will maintain a steady increase in production.
High prices could encourage the U.S. shale oil industry to release 1 million barrels per day into the global market, said Marco Dunand, managing director of Mercuria Energy Trading, speaking at the Reuters Commodity Trading Summit.
OPEC +, as the wider exporting group is called, has rejected calls from the White House to increase production. American production recently stood at 11.5 million barrels per day, still below the nearly 13 million barrels per day reached at the end of 2019.
The White House has raised the possibility of releasing oil from the United States Strategic Petroleum Reserve amid concerns over the recent spike in gasoline prices. Typically, the United States operates the SPR in emergencies, such as hurricanes.