Oil prices plunge into close, roiled by inflation fears

A pump jack operates in front of a drilling rig at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford
  • Brent and WTI prices retreat from two-week highs
  • U.S. crude stocks rose by 1 mln bbls last week - EIA
  • Inflation data boosts expectations for Fed action
  • Biden: White House is focused on cutting energy costs

NEW YORK, Nov 10 (Reuters) - Oil prices slumped on Thursday, hit by a surge in the dollar after U.S. President Joe Biden said his administration was looking for ways to reduce energy costs amid a broader surge in inflation.

Brent and U.S. crude futures dropped sharply at the end of the session as traders sold out of riskier assets, including stocks and commodities, driven by expectations that central bankers will take steps to curb rising prices.

Consumer inflation data on Wednesday showed U.S. prices were rising at a 6.2% year-over-year rate, their fastest rate in three decades, and may spur both the White House and U.S. Federal Reserve to take action to head that off. That boosted the dollar, which often trades inversely to oil. read more

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Brent crude futures settled down $2.14, or 2.5%, to $82.64 a barrel. That contract hit a high of $85.50 on the session before retreating. U.S. crude settled down $2.81, or 3.3%, to $81.34 after reaching a high of $84.97 a barrel, just off seven-year highs touched in the last few weeks.

"There's, no doubt, more pressure on the administration after the inflation reading numbers today," said Phil Flynn, senior analyst at Price Futures Group. "There’s a growing concern the Fed may have to go back to acting more aggressively on a rate increase, so that’s given the dollar a rally."

Inflation is heating up as the economic drag from the summer wave of COVID-19 infections fades and supply bottlenecks persist. The Federal Reserve is expected to try to stave the ongoing increase in prices, which has lasted longer than originally anticipated. read more

That sparked a rally in the dollar, which undermines the price of oil as it raises the cost for other nations because oil is largely transacted in dollars.

Biden said he asked the National Economic Council to work to reduce energy costs and the Federal Trade Commission to push back on market manipulation in the energy sector in a larger effort to reverse inflation.

"Those comments caused the market to tank," said Bob Yawger, director of energy futures for Mizuho in New York.

Separately, U.S. crude inventories rose by 1 million barrels in the most recent week, short of estimates for a 2.1 million build in crude stocks.

Several traders said on Thursday that prices could continue to rise in coming months, but noted as well that an ongoing rally could spur more shale industry production that would offset demand. read more

The market has rallied in recent days on expectations that the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, along with other exporting allies, would maintain a steady increase in output.

High prices could encourage the U.S. shale oil industry to unleash 1 million bpd into the global market, said Marco Dunand, chief executive at Mercuria Energy Trading, speaking at the Reuters Commodity Trading Summit. read more

OPEC+, as the wider exporting group is called, rebuffed calls by the White House to boost production. U.S. output was most recently at 11.5 million barrels per day, still short of the near-13 million bpd reached in late 2019.

The White House has tiptoed around the possibility of releasing oil from the U.S. Strategic Petroleum Reserve amid concern over recent soaring gasoline prices. Generally, the U.S. taps the SPR in the case of emergencies, like hurricanes. read more

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Reporting by David Gaffen; additional reporting by Jessica Resnick Ault Editing by Elaine Hardcastle, Andrei Khalip and Mark Heinrich

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David Gaffen oversees a team writing and reporting on oil and gas throughout North America; he previously worked at The Wall Street Journal and TheStreet.com