Oil Update: Brent Oil Falls Below $85 as China Seeks to Ease Energy Crisis

Futures in London fell below $85 a barrel amid a broader drop in raw materials including aluminum and copper. China is studying ways to intervene in the coal market to ensure reasonable prices, while the nation’s energy watchdog hosted a Tuesday meeting with refiners after oil prices soared.

The American Petroleum Institute reported crude inventories rose by 3.29 million barrels last week, according to people familiar, though the industry group reported another large decline at the key storage hub of Cushing, Oklahoma. Inventory draws there have seen the market structure of U.S. crude futures rocket higher, with the much-watched spread between the nearest two December contracts touching $10 a barrel this week, its strongest since 2013.

Oil has rallied as an energy crunch — prompted by coal and natural gas shortages — coincided with rebounding demand from economies recovering from the pandemic. Wall Street has been steadily upping its estimates for oil prices in recent weeks, with Morgan Stanley the latest bank to do so, calling for $95 Brent in the first quarter of next year.

“The only thing it feels similar to is 2008, that was more oil focused than gas or power, but there was a similar panic about running out of energy,” said Callum Macpherson, head of commodities at Investec Plc. “There’s obviously been curtailments of industry here in Europe, and there are all kinds of problems in China with power cuts, but when I look at the equity markets there doesn’t seem to be much worry about it.”

U.S. gasoline and distillate stockpiles — a category that includes diesel — both declined last week, the API said. The median estimate in a Bloomberg survey forecast the Energy Information Administration will report nationwide crude inventories increased by 2 million barrels.