Crude oil trading reminder: Democrats pressured Biden to consider releasing strategic reserves, oil prices plummeted by nearly 4%, and OPEC monthly report test

During the Asian session on Thursday (November 11), U.S. crude oil hovered at US$81.58/barrel; oil prices fell on Wednesday, and U.S. oil fell nearly 4%, the biggest drop in a week. A US government report showed that domestic crude oil inventories unexpectedly increased and the dollar rose. It suppressed the prices of commodities priced in US dollars; coupled with the market’s increased expectations of the Biden government’s release of crude oil reserves, it further dragged down oil prices.



During the day, we will focus on OPEC monthly report and the reports of the Biden administration on oil price-related remarks.

Negative factors affecting oil prices

[The increase in US crude oil inventories drags down oil prices]

The U.S. Energy Information Administration (EIA) said on Wednesday that US crude oil inventories increased last week, while distillate inventories such as gasoline and diesel fell further due to strong demand.

In recent weeks, the US oil market has tightened supply. Due to increased demand, as more international travel resumes, consumption during the holiday season may rise further.

As of the week of November 5, crude oil inventories increased by 1.002 million barrels, and analysts expected an increase of 2.1 million barrels. After the data was released, crude oil prices fell. Gasoline inventories fell by 1.6 million barrels, which was basically in line with analysts' expectations. It was the fifth consecutive week of decline. Currently, overall inventories are at their lowest level since November 2017. Gasoline is the most used fuel in the United States.

Distillate stocks, including diesel and jet fuel, fell by 2.6 million barrels, an estimated decrease of 1.1 million barrels. Distillate stocks are at their lowest level since April 2020. The refinery capacity utilization rate increased by 0.4% to 86.7% last week. The refinery's refining capacity increased by 343,000 barrels per day.

EIA said crude oil inventories in Cushing, Oklahoma fell by 34,000 barrels. Last week, US crude oil imports fell by 192,000 barrels per day.

Financial website Forexlive said that after the release of the US EIA crude oil report, oil prices fell slightly. After the release of today's CPI report, the fluctuation of the U.S. dollar caused oil prices to rebound. The risk is that the Fed may raise interest rates early to curb economic growth and further damage crude oil demand.

[Democrats pressure Biden to consider releasing strategic reserves of crude oil]

US President Biden is facing increasing pressure from his fellow Democrats. They demand measures, including possible bans on oil exports and the release of crude oil from the national strategic reserve, to solve the problem of rising gasoline prices.

Eleven Democratic senators, including several senators who are known for their concern about climate change, urged Biden in a letter this week to act quickly to deal with the issue of the nation’s average gasoline price per gallon reaching its highest level since 2014. . They believe that households and small businesses are currently under "excessive burden" and urged the release of oil from the national strategic reserve, and even more radical measures to ban U.S. crude oil exports.

The letter, signed by climate hawks such as Elizabeth Warren from Massachusetts and Ed Markey, author of the Green New Deal, said, “For a long time to come, the United States will be committed to promoting cleanliness and sustainability. The development of renewable energy, but at the same time we must ensure that Americans can afford to fill up their cars during this period."
Even if the Biden government participates in the United Nations climate change conference that will end in Scotland this week, this letter may still provide Biden with political cover to release millions of barrels of oil from the strategic oil reserve.

Bob McNally, president of the consulting firm Rapidan Energy Group and former White House official, said the most likely course of action is to release oil from the Strategic Petroleum Reserve (SPR).

McNally said, “From all angles, the government values the release of SPR the most, and this is what the market expects.” “I still believe that the market is looking forward to the release of SPR later this week. I think this is the most likely option. "

The implementation of the oil export ban is less likely because it will disrupt the flow of oil around the world. Only six years ago, Congress lifted the 40-year ban on US oil exports, reshaped the global crude oil market, and changed geopolitics and the entire economy. The United States has become the world's largest oil producer, and its oil is exported to more than 50 countries. With the exception of Saudi Arabia, the United States often ships more than any OPEC country.

Traders are continuing to evaluate the Biden administration's plan to quell rising energy prices. The White House did not announce the release of strategic oil reserves, but said it would continue to study all available tools to limit the impact of high oil prices on consumers. Rebecca Babin, senior energy trader at CIBC Private Wealth Management, said that the market has It seems to be groping in the dark, and the strengthening of the US dollar and the less bullish inventory data also helped the price fall.

[S&P 500 index hits the largest decline in a month]

The U.S. stock market posted its biggest decline in a month, U.S. bond yields soared, and high inflation data triggered turmoil in the financial market. The S&P 500 expanded its decline, falling 0.8% to 4,646.71 points; the yield of the 2-year U.S. Treasury rose sharply. The U.S. October CPI rose the most year-on-year since 1990, and the market began to adjust its expectations for the timing of the Federal Reserve's interest rate hike.

The Nasdaq 100 index led the market decline, because high-value technology stocks are considered the most vulnerable to inflation. The high inflation rate puts the Fed under more pressure to reduce the size or raise interest rates earlier, and the risks in the stock and bond markets have increased. The October CPI increased by 6.2% year-on-year, exceeding the expected median of 5.9%. City Index senior financial market analyst Fiona Cincotta said, “Now that the inflation rate has exceeded 6%, I think the Fed will be a little bit unsure. They cannot ignore the 6.2% CPI. If they act, they will feel more Lean towards the hawks."

US Treasury Secretary Yellen reiterated on Tuesday that high inflation will not continue beyond next year and said that the Fed will not allow the situation of the 1970s to repeat itself, but traders worry that the latest data may be enough to force the Fed to raise interest rates as early as June 2022.

Bullish factors affecting oil prices

[U.S. inflation rate rose to the highest in 31 years in October]

The U.S. October Consumer Price Index (CPI) rose the most year-on-year since 1990, exceeding expectations, further indicating that as companies transfer cost pressures through price increases, the upward momentum in U.S. prices continues to increase. According to data released by the Ministry of Labor on Wednesday, the CPI increased by 6.2% year-on-year and 0.9% month-on-month, the largest in four months. Both of these figures exceeded the expectations of all economists surveyed by Bloomberg.



The prices of energy, food, automobiles, and housing have all increased, indicating that the scope of inflation is no longer limited to a few areas related to economic restart. In the context of strong demand, companies have been steadily increasing the prices of consumer goods and services due to supply chain bottlenecks and labor shortages pushing up costs. Many economists, including some Fed officials, expect inflationary pressures to continue into next year.

[The number of people claiming unemployment benefits for the first time in the United States decreased last week]

The number of first-time jobless claims in the United States dropped by 4,000 to 267,000 last week, which is estimated to be 260,000. The 44 economists surveyed have forecasts ranging from 245,000 to 300,000. The 4-week moving average was 278,800; in the week ending October 30, the number of people who continued to apply for unemployment benefits increased by 59,000 to 2.16 million.



On the whole, the increase in inventories drags down oil prices, and at the same time increases the possibility that the market will release crude oil reserves from the Biden government. In addition, the Democratic Party’s pressure on the Biden government will further increase oil prices or be expected to be suppressed by the Biden government’s release of crude oil reserves. Oil prices are facing the risk of further corrections, pay attention to support near the 80-round mark; in addition, it is necessary to focus on OPEC monthly reports in the day.

GMT+8 8:14, US crude oil is currently quoted at US$81.64/barrel.