Futures Movers: Oil on track for weekly drop on strong dollar, SPR worries

United States

Oil futures fell Friday, on track for weekly losses attributed in part to a stronger U.S. dollar and the threat of a possible release of crude from the Strategic Petroleum Reserve.

West Texas Intermediate crude for December delivery CL00, -1.23% CLZ21, -1.23% fell $ 1.35, or 1.6%, to $ 80.24 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark on track for a 1.2% weekly fall. January Brent crude BRN00, -1.15% BRNF22, -1.15%, the global benchmark, was down $ 1.32, or 1.6%, at $ 81.55 a barrel on ICE Futures Europe, headed for a 1.4% weekly decline.

The prospect of a release of crude from the U.S. reserve has helped put a lid on crude prices, analysts said. Eleven Democratic senators early this week pressed the Biden administration to consider an SPR release or other measures, such as export bans. A monthly report from the Energy Department’s Energy Information Administration, however, was seen cooling prospects for a move after it showed the market moving back into surplus in 2022.

President Joe Biden, however, remains under pressure to address rising prices after data on Wednesday showed U.S. consumer inflation rose 6.2% year over year in October, the fastest pace in nearly 31 years. White House staff continue to debate whether to make an immediate move to lower energy prices or hold off due to worries that such efforts would conflict with Biden’s agenda on climate, trade and foreign policy, Bloomberg reported Friday.

Analysts, meanwhile, question whether an SPR release or other potential measures would have a lasting impact on prices.

“Most investors would agree that the efficacy of an SPR release or ban of exports provides the opportunity for Biden to look presidential, but most agree that market impact is likely minimal with potentially negative externalities,” said Michael Tran, analyst at RBC Capital Markets, in a note.

A ban on crude exports would considerably widen the spread between WTI and Brent crude, sending Brent prices soaring for the rest of the world, he said, while a ban on gasoline exports could strain trade relations with Mexico, which takes nearly half of the exports.

Meanwhile, a strengthening dollar is also seen weighing on oil prices. The ICE U.S. Dollar Index DXY, -0.03%, a measure of the currency against a basket of six major rivals, was little changed Friday but on track for a 0.9% weekly rise. The index rose to a 15-month high after the hot inflation data pushed up Treasury yields as investors penciled in expectations for the Federal Reserve to move more aggressively to tighten monetary policy.

A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.