Oil drops as Biden’s emergency crude release eases supply fears

(Bloomberg) – Oil fell as the prospect of additional supplies from strategic reserves eased market concerns about a tight market as winter approaches in the Northern Hemisphere.

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West Texas Intermediate futures fell nearly 4% to trade below $83 a barrel on Tuesday. The United States is preparing to release more crude from its strategic reserve to lower fuel prices. Crude pared some losses after learning Mexico had completed its 2023 hedging program that helps protect earnings if prices fall below $68.70.

“Crude prices have fallen as energy traders expect the Biden administration to remain aggressive with further releases from its strategic oil reserves,” said Ed Moya, senior market analyst at the brokerage and data provider Oanda Corp. “With less than a month to go until the midterm elections, President Biden wants energy prices to move in the right direction.

October’s choppy crude trading saw the market caught between two divergent factors. Key indicators of market strength, known as timing gaps, signal tension before OPEC+ production cuts begin next month, but downside factors such as weak Chinese demand and the aggressive monetary policy of central banks continue to weigh on the market. European Union sanctions against Russia are also looming, and some Indian refiners are halting spot purchases of the country’s crude ahead of that deadline.

Prices have fallen by about a third since early June, wiping out any gains made after Russia invaded Ukraine in late February. EU sanctions on Moscow’s oil trade are set to come into effect from December, prompting traders and refiners to set aside storage tanks in anticipation of a supply shortage.

Despite range-bound trading, open interest in the global benchmark Brent is steadily increasing. Holdings hit their highest level since March in the most recent data, although they remain well below where they were before the war in Ukraine triggered huge price volatility and crushed trading volumes . Holdings of WTI continued to tumble.

The United States is moving towards releasing an additional 10 to 15 million barrels of oil from the country’s emergency stockpile, according to people familiar with the matter. Separately, the Biden administration is still weighing limits on fuel exports, two of the people said.

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