Oil prices showed downward volatility on Friday with the Brent Crude index down by as much as 6% in morning trading.
The downturn occurred as news of a new COVID variant cast a shadow over hopes of rapid economic recovery from the pandemic.
Oil prices were also depressed as a tensions grew between the IEA and production block OPEC+ on the loosening of supply, as President Biden announced the release of 50 million barrels from the US’ strategic petroleum reserve. Oil prices however rallied at the news as some OPEC producers hinted they might draw down a planned incremental monthly 400,000 barrel per day production increase if there was more oil on the market.
“[A] factor I would like to underline that caused these high prices is the position some of the major oil and gas suppliers, and some of the countries did not take, in our view, a helpful position in this context,” said IEA head Fatih Berol to CNBC this week. “In fact, some of the key strains in today’s markets may be considered as artificial tightness … because in oil markets today we see close to 6 million barrels per day of spare production capacity lies with the key producers, OPEC+ countries.”
Oil prices are a 50% component of gasoline prices according to a recent Dallas Fed study, which argued that gasoline price shocks accounted for approximately 3% of October’s 6% inflation.
By Feike de Jong
