By Adedapo Adesanya
Oil prices depreciated on Tuesday as traders worried about mounting supplies, causing Brent crude futures to fall by $1.03 or 1.2 per cent to $85.58 a barrel, with the US West Texas Intermediate (WTI) crude futures down by $1.08 or 1.4 per cent to $79.06 a barrel.
The US Department of Energy (DOE) said on Monday that it would sell 26 million barrels of oil from the SPR, which is already at its lowest level since 1983.
The announced sale will likely temporarily push the reserve below its current level of about 372 million barrels. The DOE said bids on the oil are due on February 28 and that the oil would be delivered from April 1 to June 30.
The administration of President Joe Biden sold 180 million barrels of oil to combat fuel prices that had risen due to Russia’s invasion of Ukraine and as global consumers emerged from the COVID-19 pandemic.
The DOE said it expects that companies would return 3.1 million barrels of oil to the SPR this fiscal year and 22 million barrels in the 2024 fiscal year from exchanges or short-term loans of oil conducted to help deal with supply concerns in the wake of hurricanes.
Last year, the US Congress cancelled sales of about 140 million barrels from the SPR that had been set to take place from the fiscal year 2024 to the fiscal year 2027 after a DOE proposal to stop them.
Oil pared losses after data showed the slowest pace of acceleration in the US consumer price index since late 2021. Analysts said the data would likely keep the Federal Reserve on a moderate interest rate hiking path.
Consumer prices rose 6.4 per cent in January from 12 months earlier, down from 6.5 per cent in December. It was the seventh straight year-over-year slowdown and well below a recent peak of 9.1 per cent in June. Yet it remains far above the Federal Reserve’s 2 per cent annual inflation target.
Oil prices also pared losses after the Organization of the Petroleum Exporting Countries (OPEC) raised its 2023 oil demand forecast by 100,000 barrels per day in a monthly report, citing the reopening of the Chinese economy after COVID-19 restrictions.
Global oil demand will rise this year by 2.32 million barrels per day or 2.3 per cent, the cartel said on Tuesday.
Analysts noted that a tighter supply and demand balance could support oil prices that have held relatively steady since December and stand at a little less than $86 a barrel.
Some other positive factors include the likelihood that the US Federal Reserve will manage a soft landing for the US economy and further commodity price weakness, OPEC said.
