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Futures Movers: Oil prices end at 2-week high as talk of potential U.S. SPR release highlights supply shortage

Oil futures settled Tuesday at their highest level in two weeks, with some analysts pointing out that talk of a potential release of crude from the U.S. Strategic Petroleum Reserve highlights the shortage of supplies.

In a monthly report released Tuesday, the Energy Information Administration said it estimates that world crude oil consumption has “exceeded” crude-oil production for five consecutive quarters going back to the third quarter of 2020.

It expects global crude oil demand to exceed global supply through the end of this year, but global oil stocks will begin building in 2022, “driven by rising production from OPEC+ and the United States, along with slowing growth in oil demand.” The EIA raised its forecast for 2022 U.S. oil production by 1.4% to 11.9 million barrels a day.

Some analysts said the EIA’s monthly report would play a role in a decision by the Biden administration on whether to tap the Strategic Petroleum Reserve in an effort to lower oil and gasoline prices.

An SPR release, however, would be a “short-term measure at best,” since any inventory drawn from the reserve would have to eventually be replenished, Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

Oil prices may even rise in response to an SPR release, he said, as the move “will be seen as a desperate attempt that highlights the acute shortage of oil,” said Raj.

“A U.S. SPR release would be “seen as a desperate attempt that highlights the acute shortage of oil.””

— Manish Raj, Velandera Energy Partners

West Texas Intermediate crude for December delivery
CL00,
+2.90%

CLZ21,
+2.90%

rose $2.22, or 2.7%, to settle at $84.15 a barrel on the New York Mercantile Exchange. January Brent
BRN00,
+0.12%

BRNF22,
+0.12%
,
the global benchmark, gained $1.35, or 1.6%, to $84.78 a barrel on ICE Futures Europe.

Both WTI and Brent crude marked the highest front-month contract settlements since Oct. 26, according to Dow Jones Market Dat.

“While the strategic reserve was designed for national disasters threatening national security, it appears as if the administration deems high prices as [a] natural disaster,” analysts at Zaner wrote in a Tuesday note.

In terms of demand, the return of intercontinental travel will “serve to tighten distillate/jet fuel supply, which in turn will put added pressure on an already tight crude oil situation,” the analysts said. They pointed out that supplies of crude at the Cushing, Okla., Nymex crude delivery hub are already at the lowest level since September 2018.

Traders will get an weekly update on U.S. crude supplies Wednesday, including stocks at Cushing, from the EIA. A separate report from the American Petroleum Institute, a trade group, will be released ahead of that late Tuesday.

On average, analysts expect the EIA to report that domestic crude supplies climbed by 1 million barrel in the week ended Nov. 5, according to a poll conducted by S&P Global Platts. They also forecast a fall of 1.6 million barrels for gasoline inventories, but distillate stockpiles are expected to be unchanged for the week.

In Nymex trading Tuesday, December gasoline
RBZ21,
+2.33%

tacked on 2.3% to $2.375 a gallon and December heating oil
HOZ21,
+1.60%

added 1.7% to $2.508 a gallon.

The EIA raised its forecast Tuesday for U.S. retail regular gasoline prices by 1% to $3 a gallon for this year, and by 0.4% to $2.91 for 2022.

Natural-gas futures ended sharply lower, with the December contract
NGZ21,
-8.92%

down 8.3% at $4.979 per million British thermal units, following a loss of 1.6% Monday.

The EIA on Tuesday lowered its natural-gas price forecasts, by 1.6% this year to $4.10, and by 1.8% to $3.93 in 2022.

“Mild weather has limited natural gas consumption and helped bring our storage levels closer to average in recent weeks, but cold winter weather could continue to put upward pressure on prices,” said EIA Acting Administrator Steve Nalley, in a statement. “Winter temperatures will be the key driver of natural gas demand, inventories, and ultimately prices.”

Weekly data on U.S. natural-gas supplies will be released Wednesday by the EIA, a day earlier than usual because Thursday is Veterans Day, a federal holiday.

Read: Biden administration says it’s studying replacement of Line 5 oil and gas pipeline

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