Oil declined amid a stronger dollar and after a U.S. government report showed a surprise increase in domestic crude stockpiles.

Futures in New York fell 3.3 per cent on Wednesday, the biggest drop in a week, as a rising dollar weighed on commodities like oil priced in the currency. In the U.S., domestic crude inventories increased for a third straight week to the highest since August, according to an Energy Information Administration report. The industry-funded American Petroleum Institute had reported a supply decline on Tuesday. 

Traders are also continuing to assess the Biden administration’s plans to quell rising energy prices. The White House didn’t announce a strategic petroleum reserve release on Tuesday and said it continues to look at all the tools it has available to limit the impact of high prices on consumers.

“The market is feeling around in the dark for clue as to how the U.S. administration responds to higher energy prices,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. The combination of a stronger dollar and less bullish inventory data is also contributing the price, she said.

Oil surged to a seven-year high last month as economies recovered from the coronavirus pandemic and a global energy crisis aided demand, boosting U.S. gasoline prices and fanning inflation. The head of Mercuria Energy Group Ltd. said oil demand has returned to pre-pandemic levels, joining Vitol Group in calling the global crude market recovery. Rising prices prompted President Joe Biden to weigh the merits of an emergency crude release with the Organization of Petroleum Exporting Countries and its allies refusing to hike output faster.

Eleven Democratic senators, including several known for their concerns on climate change, urged Biden in a letter this week to act quickly with the national average price for a gallon of gasoline at its highest level since 2014. The senators invoked the “undue burden” on families and small businesses and pressed for the release of oil from the nation’s strategic reserve or even the more drastic step of banning export of U.S. crude.

Prices:

• West Texas Intermediate crude for December delivery fell US$2.81 to settle at US$81.34 a barrel in New York
• Brent for January settlement declined US$2.14 to settle at US$82.64 a barrel

There was also speculation the U.S. might coordinate reserve releases with other nations including Japan, which has also been pressing OPEC+. Hikariko Ono, director general of the Economic Affairs Bureau, held a video conference with the head of the International Energy Agency to register concern over prices. On the call, the IEA’s Fatih Birol expressed a willingness to work with members and producers to stabilize the market. 

The EIA report also showed inventories at the nation’s biggest storage hub at Cushing, Oklahoma, fell 34,000 barrels last week. 

Related coverage:

• Russia’s Deputy Energy Minister Pavel Sorokin has discussed oil cooperation with David Turk, U.S. Deputy Energy Secretary, according to a statement from the Russian authority.
• Total U.S. crude and product exports jumped to the highest since July, largely because of a boost in distillate outflows, which also were at a roughly four-month high, the EIA’s weekly report showed.
• The White House pledged to discuss a key pipeline that carries Canadian crude through Michigan with its northern neighbor, stressing the U.S. isn’t considering a shutdown.
• International Energy Agency Executive Director Fatih Birol expressed a willingness to work with member countries and producers to try and stabilize oil prices, Japan’s Ministry of Foreign Affairs said in a statement.