Oil Plummets as U.S./China Talks To Curb Inflation Result In No Action

Meanwhile, the White House holds a massive auction for Gulf drilling rights: File Image/Pixabay

Oil prices on Wednesday endured another round of losses, plummeting to six-week lows in the aftermath of U.S. president Joe Biden and China president Xi Jinping debating whether to release crude from their emergency reserves but failing to reach a decision.

John Kilduff, founding partner at Again Capital, said, "The market's gaze has been distracted once again by the White House: we appear to be another step closer to a release, which is pressuring prices."

Ed Moya, senior market analyst at Oanda Corp., added, "Energy markets are waiting to see what, if any, coordinated efforts with the U.S. and China happen before placing bullish bets."

For the record, China has already tapped its strategic petroleum reserve at least twice this year.

West Texas Intermediate on Wednesday dropped $2.40 to settle at $78.36 per barrel, while Brent slipped $2.15 to settle at $80.28 per barrel.

According to officials, Biden and Xi agreed to keep talking about oil markets and a possible coordinated response to the Organization of the Petroleum Exporting Countries' (OPEC) refusal to increase output and bring down prices that experts fear will slow the global economic recovery.

Meanwhile, to the ire of environmentalists, 33 oil companies on Wednesday spent $191.7 million buying drilling rights in the Gulf of Mexico during an auction managed by the White House, although the leases were said to be unlikely to result in production for five to 10 years.

This was reportedly a bigger sale than most of the Gulf transactions conducted under the much-maligned Donald Trump presidency.

Driving all of this is a steady stream of evidence showing tight inventories well into 2022 if the status quo is maintained: Bloomberg on Wednesday noted that while the International Energy Agency, OPEC, and the U.S. Energy Information Administration see the global oil deficit shrinking in the current quarter and flipping into surplus next year, there is considerable debate about whether OPEC can make its targets.

If it can't, the news agency pointed out that, "The first-quarter supply surplus is virtually wiped out, with a small stock build in January offset by further draws in February and March; the subsequent builds in global inventories don't exceed 1 million barrels per day, in contrast to the 3 million barrel per day increase seen in 4Q22 when using the OPEC targets."