Russia’s threats to cut output and rising Chinese demand failed to offset the effects of a US plan to sell more crude oil from the Strategic Petroleum Reserve, as oil fell Monday.
US benchmark West Texas Intermediate fell toward $79 per barrel after a volatile burst of trading Monday. In accordance with a budget mandate put into effect in 2015, the US is preparing to sell 26 million barrels of crude from the Strategic Petroleum Reserve, which spooked traders.
In addition, on Tuesday there will be a release of crucial US inflation data which will influence expectations of investors on how high the US Federal Reserve will hike interest rates, as it battles to bring a persistently high inflation rate back toward the regulator’s 2% target rate.
2023 has been a volatile year for oil so far, as traders have attempted to navigate a difficult-to-gauge China-reopening, amidst supply chaos being produced as the West attempts to punish Russia by limiting the price that it can sell oil at, without impacting global supply, all as Russia promises to unilaterally cut off its exports to certain nations as a punitive measure in response to the sanctions. All of which is occurring amidst a backdrop of cutbacks in production quotas issued by the Organization of Petroleum Exporting Countries and its allies, also known as OPEC+.
Vandana Hari, founder of Vanda Insights in Singapore, said, “Prices have dipped after the plan to sell strategic oil by the US, but that story sits on the periphery. What’s baked in right now is the cautious optimism over the US and European economies, a gradual rise in Chinese demand, and a drop of about 500,000 barrels a day in Russian output.”
Last year the Biden administration ordered an unprecedented release of crude oil into the market amid the geopolitical and economic fallout from the Russian invasion of Ukraine, including rampant inflation and record gasoline prices. More recently, the Energy Department has attempted to stop some of the mandated releases under the 2015 law, due to the low levels of the Strategic Reserve.
Later Tuesday, OPEC will release its monthly market snapshot, which will offer traders a window into the cartel’s predictions of supply and demand in 2023.
