Oil prices fell on Tuesday as traders worried about rising supplies, with Brent crude futures falling $1.03 or 1.2% to $85.58 a barrel and US West Texas Intermediate (WTI) crude futures falling $1.08 or 1.4% to $79.06 a barrel.
The US Department of Energy (DOE) announced on Monday that it will sell 26 million barrels of oil from the Strategic Petroleum Reserve (SPR), which is already at its lowest level since 1983.
The announced sale will most likely temporarily reduce the reserve to less than 372 million barrels. The DOE stated that bids for the oil are due on February 28 and that it will be delivered between April 1 and June 30.
President Joe Biden’s administration sold 180 million barrels of oil to combat rising fuel prices caused by Russia’s invasion of Ukraine and as global consumers recovered from the COVID-19 pandemic.
The DOE expects companies to return 3.1 million barrels of oil to the SPR this fiscal year and 22 million barrels in the fiscal year 2024 as a result of oil exchanges or short-term loans made to address supply concerns following hurricanes.
Following a DOE proposal to halt sales of approximately 140 million barrels from the SPR from fiscal year 2024 to fiscal year 2027, the US Congress cancelled them last year.
Oil recovered some of its losses following data showing the slowest rate of acceleration in the US consumer price index since late 2021. Analysts believe the data will keep the Federal Reserve on a moderate rate hike path.
Consumer prices increased 6.4 percent year on year in January, down from 6.5 percent in December. It was the seventh consecutive year-over-year decline and well below the recent peak of 9.1 percent in June. Nonetheless, it remains far above the Federal Reserve’s 2% annual inflation target.
Oil prices also recovered after the Organization of Petroleum Exporting Countries (OPEC) raised its 2023 oil demand forecast by 100,000 barrels per day in a monthly report, citing the Chinese economy’s reopening following COVID-19 restrictions.
According to the cartel, global oil demand will rise by 2.32 million barrels per day, or 2.3 percent, this year.
Analysts believe that a tighter supply-demand balance could support oil prices, which have been relatively stable since December and are currently trading at slightly less than $86 per barrel.
Other positive factors, according to OPEC, include the likelihood that the US Federal Reserve will manage a soft landing for the US economy and further commodity price weakness.
