West Texas Intermediate fell 1.5%, putting crude on course for a third weekly fall. Biden is weighing moves including a release of oil from the Strategic Petroleum Reserve to try to bring down the cost of gasoline at the pump, which has hit a seven-year high.
For several weeks, a small group of top aides has discussed possible moves, according to people familiar with the matter. Consensus has been elusive, with some Energy Department officials pushing back against tapping the SPR while White House aides lobby for a release, or even halting U.S. crude exports.
Oil has marched higher this year as consumption rebounded from the impact of the pandemic, contributing to the fastest U.S. consumer price inflation in decades. While prices are feeling the pressure of reserve releases in the short-term, options contracts changed hands on Thursday that would profit buyers from a spike up to $250. Facing rising political pressure to act, Biden is weighing his options for intervention even though the Energy Information Administration pointed to weaker balances next year.
The challenge facing Biden over gasoline costs is particularly apparent in California, the state where drivers typically pay more for the fuel than anywhere else in the U.S. Retail prices now average $4.65 a gallon, just 2 cents shy of the record that was set in 2012, according to AAA data.
“Headwind is being generated by a significantly firmer U.S. dollar and speculation about a release of strategic oil reserves in the U.S.,” said Carsten Frtisch, an analyst at Commerzbank AG. “If OPEC+ wants to avoid an oversupply it will need to rethink its production plans for next year.”
Oil’s drop has come as a gauge of greenback heads for a 1% weekly gain, the most since August, on concern that rising U.S. inflation would warrant earlier interest rate hikes from the Federal Reserve. A stronger dollar makes raw materials priced in the currency less attractive for overseas buyers.
While advocating a cautious approach to the restoration of supply, OPEC has struggled to meet its modest output growth targets. Its production expanded by 217,000 barrels a day in October, according to a monthly report. That’s less than its share of the 400,000 barrel-a-day monthly hike agreed by OPEC+.