WTI consolidates around $81.00 as traders speculate over potential US SPR release

• WTI is consolidating either side of the $81.00 level, having slipped sharply on Wednesday in wake of hot US CPI.
• The inflation data has triggered worries that the Biden administration might release crude oil reserves to lower prices.

Oil prices are consolidating on Thursday ahead of the US open, with front-month futures contracts of the American benchmark for sweet light crude oil, called West Texas Intermediary or WTI, swinging either side of the $81.00 per barrel mark. Subdued trading conditions are not too surprising given thin liquidity conditions in US markets, which are partially closed on Thursday in observance of the Veteran’s Day holiday (bond markets are closed, but equity and futures markets are open).

Thursday’s consolidation comes after a sharp drop on Wednesday. WTI fell more than $3.00 on the session, pulling back from intra-day peaks at $85.00 per barrel to end the session at $81.28. With crude oil now having failed to break above the $85.00 on multiple occasions over the past few weeks, this level may now form the ceiling of a new range. The bottom of that range might well be last Wednesday’s lows in the $78.00s. As traders await further clarity on US energy policy (how will the Biden admin address high prices) and the state of the demand recovery (lockdown chatter in the EU is a worry and may hit demand over winter), rangebound conditions may prevail.

Biden to release crude reserve amid high inflation?

The sell-off on Wednesday was triggered by a much hotter than expected US Consumer Price Inflation report for October, which showed headline inflation surpass 6.0% on a YoY basis and almost hit 1.0% on a MoM basis.

Rising energy prices made up a significant component of the sharp jump in US consumer prices. Speculation is now swirling that the report has increased the likelihood that the Biden Administration opts to release reserves from the Strategic Petroleum Reserve (SPR) as a way of pushing down energy prices. In response to Wednesday’s inflation report, President Joe Biden said that dealing with inflation was a top priority for his administration and that he had asked the White House National Economic Council to pursue means to reduce energy costs.

Note that high inflation is the main reason why Biden’s approval rating has been dropping in recent months. This is already impacting Democrat election performance ahead of the November 2022 mid-term elections (an underdog Republican candidate for Virginia Governor secured an easy win earlier in the month). That gives Biden a strong incentive to do all he can to lessen inflationary pressures in the US, especially the rise in energy costs.