Oil futures fell on Wednesday, posting their first loss in four sessions, pressured by a weekly rise in U.S. crude inventories, as well as strength in the U.S. dollar on the heels of a hotter-than-expected inflation reading which boosted bond yields.

“It seems unlikely crude prices can break above recent [price] highs until energy traders see whatever action will come from the Biden administration,” said Edward Moya, senior market analyst at Oanda, in a market update. The market believes the U.S. government may release crude from the nation’s Strategic Petroleum Reserve to help ease prices, but mere speculation over the potential move has managed to pressure oil prices.

Moya also points out that “the oil market deficit is firmly in place and that should prevent WTI crude from seeing a significant pullback.” 

West Texas Intermediate crude for December delivery
CL00

CLZ21
fell $2.81, or 3.3%, to settle at $81.34 a barrel on the New York Mercantile Exchange after posting gains in each of the last three sessions. Year to date, front-month prices are still up nearly 68%, according to Dow Jones Market Data.

January Brent crude
BRN00

BRNF22,
the global benchmark, lost $2.14, or 2.5%, at $82.64 a barrel on ICE Futures Europe, snapping a three-session rise.

Despite the price pullback Wednesday, Tariq Zahir, managing member at Tyche Capital Advisors, said that there are “many factors that will restart the bullish momentum in the coming days and weeks.”

Demand is still strong, and the pace of inflation over the past year marched to 6.2% in October, the highest rate since November 1990. “Prices are going up everywhere on everything,” said Zahir. “Even with the threat of Biden releasing oil from the [Strategic Petroleum Reserve], we feel that will be a very short-lasting weakness in energy prices.”

Still, traders should watch out for potential bearish developments: a COVID-19 resurgence, a revival of the Iran nuclear deal, and OPEC deciding to increase monthly production more than 400,000 barrels per day hike that’s currently in place, he said.

The Energy Information Administration reported on Wednesday that U.S. crude inventories rose by 1 million barrels for the week ended Nov. 5, up a third week in a row.

The size of the increase matched the average increase expected by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a 2.5 million-barrel decline.

The EIA also reported weekly inventory declines of 1.6 million barrels for gasoline and 2.6 million barrels for distillates. The S&P Global Platts survey expected supplies to decrease by 1.6 million barrels for gasoline, but distillate stockpiles were expected to show no change for the week.

On Nymex Wednesday, December gasoline
RBZ21
declined by 3.3% to $2.297 a gallon, while December heating oil
HOZ21
fell 2.2% to $2.452 a gallon.

The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub was essentially unchanged for the week at 26.4 million barrels. Total domestic petroleum production also saw no weekly change, to hold at 11.5 million barrels per day.

The SPR, meanwhile, saw a decline of 3.1 million barrels last week to 609.4 million barrels, according to the EIA, which had a footnote detailing that the number “includes non-U.S. stocks held under foreign or commercial storage agreements.”

Phil Flynn, senior market analyst at Price Futures Group, said the drawdown wasn’t a surprise, but the footnote suggests that the U.S. holds SPR stocks offshore. He could only speculate that during the pandemic, the U.S. found offshore storage sites, and “they’re probably releasing that oil back into the market.”

Still, overall, the EIA inventory numbers were “very supportive,” he said, adding that the “only” reason oil prices fell was because the U.S. dollar was so strong in the wake of the U.S. inflation data. Strength in the dollar, represented by a 0.9% rise in the ICE U.S. Dollar index
DXY
Wednesday, can pressure prices for commodities traded in the greenback, including oil.

Also see: Why surging U.S. inflation has gold bulls looking for record highs

Natural-gas futures extended their sharp decline of more than 8% from Tuesday, with the December contract
NGZ21
ending down 2% at $4.88 per million British thermal units in Wednesday dealings.

The EIA on Wednesday also released its weekly report on U.S. natural-gas supplies, a day earlier than usual because of Thursday’s Veterans Day holiday. Stockpiles in storage rose by 7 billion cubic feet for the week ended Nov. 5, the EIA said. That was less than half the average increase of 15 billion cubic feet forecast by analysts polled by S&P Global Platts.

Oil prices posted a gain on Tuesday, finding support as talk of a potential release of crude from the U.S. Strategic Petroleum Reserve highlighted the shortage of supplies, Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

Meanwhile, the Energy Information Administration’s monthly Short-Term Energy Outlook released Tuesday showed that global oil stocks would begin building next year on the back of rising production from OPEC+ and the U.S., as well as slowing growth in global oil demand.

The report “makes it less clear if the Biden administration will still take action to ease prices. However, we would still not rule out an SPR release, particularly if prices stay at these stubbornly high levels,” said Warren Patterson, head of commodities strategy at ING, in a note.

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