Crude oil prices were on the rise early on Friday morning on continuing fears that the oil markets remain tight with the G7 agreeing on a fixed price capping mechanism on Russian crude.
WTI rose nearly 5% by 10:30 a.m., as the Strategic Petroleum Reserve releases have neared their end. Throughout the SPR release period, which spanned from April to now releasing about 180 million barrels, commercial crude oil inventories rose between 20 and 30 million barrels. With the SPR releases now in the rearview, the market is fearing a substantial decrease in U.S. oil inventories. WTI had risen to $92.37 by that time.
The dollar also fell by 1.6% on Friday, bolstering the price for WTI as it becomes significantly more attractive for those who hold other currencies.
U.S. and its G7 allies’ sanctions on Russian oil go into effect on December 5, which is largely expected to curtail Russia’s oil exports by at least some amount. The sanctions on Russia’s crude oil, the end to the SPR releases, the falling dollar, and OPEC+’s expected production cuts are then colliding with stubbornly flat U.S. oil production, creating the perfect storm for high oil prices.
U.S. crude oil production has remained essentially flat since mid-April, when it was 11.9 million bpd, according to the Energy Information Administration.
“The increasingly gloomy macro outlook is providing some strong headwinds to the oil market and without the supply cuts announced by OPEC+ back in October, we would likely have been trading at much lower levels,” said Warren Patterson, ING’s Head of Commodities Strategy told Reuters on Friday.