Oil Posts Longest Weekly Losing Streak Since March On Fear Of Soaring Prices, Inflation

One analyst predicts that the oil market will remain tight until Q3 2022: File Image/Pixabay

The White House's refusal to state whether or not it will release oil from the U.S.'s Strategic Petroleum Reserves in order to tame prices at the pump led to more losses for crude on Friday, and the longest stretch of weekly losses since March.

West Texas Intermediate fell 80 cents to settle at $80.79 per barrel, while Brent dropped 70 cents to close at $82.17 per barrel.

Phil Flynn, senior market analyst at Price Futures Group Inc., noted that "Oil is in correction mode and the first key support is the psychologically important US$80 per barrel area.

"The fear is greater than the reality of what the Biden administration can do to bring down oil and gas prices."

Perhaps unsurprisingly given Flynn's observation, the equivalent of 5 million barrels of Brent $250/$300 call spreads traded late on Thursday, in addition to 8 million barrels of $200/$215 call spreads traded; these trades came as JPMorgan Chase & Co wrote in a note that oil could spike to above $100 and that "a worsening rhetoric between the U.S. administration and OPEC+ [the Organization of the Petroleum Exporting Countries] could deteriorate further into a scenario whereby the latter redirects U.S. exports eastward."

While some analysts continued to wait to see what Washington would do to counteract OPEC's earlier decision to maintain rather than increase output, the price of gasoline in the U.K. reached an all-time high of $1.96 per liter, or about $7.40 per gallon.

The price of diesel also rose to record highs, and Simon Williams, fuel spokesman for the RAC motoring association, pointed out that businesses "tend to be very dependent on diesel, and, in turn, this will lead to a knock-on effect on retail prices potentially adding more fuel to the fire of rising inflation."

However, in the U.S. at least the surging prices are prompting shale producers to boost output to levels not seen since the beginning of the pandemic: Rystad Energy calculated that production will reach 8.68 million barrels per day (bpd) in December.

Also, Russia's Rosneft announced on Friday it will increase its liquid hydrocarbon production by over 1 percent this year, and this combined with gas output will mean a total hydrocarbon production of about 4 percent in 2021.

Still, Baden Moore, commodities analyst at National Australia Bank, said strong demand recovery including air travel will mean the oil market will remain tight into the third quarter of 2022: "OPEC+ has been very canny in its management of global supply as demand recovers from the pandemic, and the group remains well positioned from this perspective."