Oil futures headed higher in volatile trading Tuesday, as comments from U.S. House Majority Leader Steny Hoyer eased expectations that the U.S. will tap the Strategic Petroleum Reserve to help lower gasoline prices.
Oil prices had also spend time trading lower in Tuesday dealings after the International Energy Agency said it expects growth in crude-oil production to help ease tight global supplies.
Prices rebounded as “the market is now thinking that it’s less likely that the U.S, will use the [SPR] is a band aid for higher gasoline prices,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.
Commodities Corner: Why tapping the SPR is one of many ‘bad’ options to ease gasoline prices
Hoyer told reporters that he doesn’t agree with Senate Majority Leader Chuck Schumer’s recent call for tapping the SPR to lower gasoline prices, Reuters reported Tuesday.
“Apparently, common sense may be taking hold as everyone knows that using the SPR to try to lower gasoline prices will only be a short-term band aid and not solve the underlying problem,” said Flynn.
““Apparently, common sense may be taking hold as everyone knows that using the SPR to try to lower gasoline prices will only be a short-term band aid and not solve the underlying problem.””
— Phil Flynn, The Price Futures Group
West Texas Intermediate crude for December delivery
the global benchmark, traded up 52 cents, or 0.6%, at $82.57 a barrel on ICE Futures Europe.
Oil prices had traded lower early Tuesday, with WTI prices touching a low at $80.03 amid signs of a recovery in global crude supplies.
In monthly reports, both the Organization of the Petroleum Exporting Countries and the IEA have “stated that global oil markets may become oversupplied before the end of the year, with the former citing a fragile demand recovery due to the ongoing pandemic, while the latter pointed to a recent trend of strong production gains, especially out of the U.S.,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.
“U.S, offshore production has seen a strong recovery from the impacts of Hurricane Ida, while output from the Permian region charted strong gains over the past couple of months,” she said, adding that the U.S. government expects Permian oil output to reach a record in December.
In a monthly report issued Monday, the Energy Information Administration forecast a rise of 67,000 barrels per day in oil production in the Permian region to 4.95 million barrels per day in December.
The International Energy Agency, in its monthly report released Tuesday, said the tight supply and demand balance in the global oil market could be set to ease. The IEA said it expects output to rise by 1.5 million barrels a day in the remainder of 2021, with the U.S., Saudi Arabia and Russia accounting for around half of that amount.
Flynn said the IEA is “really counting on U.S. energy producers to fill the void,” but may be “overly optimistic about where we will be next year, especially with new regulations coming down from the Biden administration.”
In a monthly report last week, OPEC left its forecast for 2022 growth in oil demand unchanged at 4.2 million barrels a day, but trimmed its outlook for growth this year by around 160,000 barrels to 5.7 million barrels a day, citing the effect of high prices.
Traders also eyed developments tied to Iran. The Wall Street Journal reported Tuesday that Iran has resumed production of equipment of advanced parts for its nuclear program, dulling the likelihood that it will reach a deal with world powers to revive the 2015 nuclear agreement aimed at curbing its nuclear plans.
Meanwhile, data showing a better-than-expected U.S. retail sales number “gave the Federal Reserve a little bit more wiggle room” when it comes to tapering asset purchases and increasing interest rates, said Flynn.
On top of that, St. Louis Fed President James Bullard on Tuesday who suggested that the Fed should raise interest rates twice next year and speed up the tapering of its bond purchases. Those comments caused oil prices to pull back early Tuesday, said Flynn.
Still, bullish analysts said the outlook for crude remains supportive in the near term.
“Supply will grow more to meet demand as current prices provide the perfect environment for producers to increase output, it will just not happen immediately and that’s why the remainder of 2021 is bullish,” said Louise Dickson, senior oil market analyst at Rystad Energy, in a note.
Oil has seen three consecutive weekly declines, with recent weakness tied in part to the possibility that the Biden administration could tap the Strategic Petroleum Reserve in a bid to knock down high gasoline prices, though analysts said such a move could offer only a short-term fix.
Meanwhile, December natural-gas futures
jumped 5.2% to $5.276 per million British thermal units, tracking a rise in European prices after German regulators suspended the certification process for the Nord Stream 2 pipeline that would carry natural gas from Russia to Germany.
The EIA will release its weekly data on U.S. petroleum supplies Wednesday.
On average for the week ended Nov. 12, analysts expect the EIA to report inventories declines of 2.5 million barrels for crude oil, 100,000 barrels for gasoline and 1.3 million barrels for distillates, according to a survey conducted by S&P Global Platts.