Crude oil pump drill jack
Brent’s prompt spread - the difference between the two nearest contracts - was $1.33 a barrel in backwardation, compared with more than $2 a month ago. Image Credit: Pixabay

Texas: Oil retreated as further gains in the dollar and figures pointing to higher US stockpiles countered speculation that OPEC+ will cut output.

West Texas Intermediate sank below $78 a barrel, dropping toward the lowest level since early January that was hit earlier this week. The US currency advanced to a record after a senior Biden administration official rejected the notion that there may be a coordinated global effort to rein in the US currency.

The industry-funded American Petroleum Institute, meanwhile, reported that US crude inventories swelled by more than 4 million barrels last week, according to people familiar with the figures. Official data will follow later Wednesday.

The US crude benchmark remains on track to post its first quarterly decline in more than two years on concerns that a global economic slowdown will hurt energy consumption as central banks jack up borrowing costs to tame inflation. Goldman Sachs Group said that commodities have been caught up in a negative feedback loop of weakness, citing factors including the dollar.

The surge in the US currency - which has been propelled by the most aggressive trajectory of interest-rate hikes by the Federal Reserve since the 1980s - makes commodities priced in the greenback more expensive for most buyers. Further Fed rate increases are on the cards, with policymakers including James Bullard restating their intention to tame price gains.

Oil’s slump has stoked speculation that the Organization of Petroleum Exporting Countries and its allies will pare output to arrest the rout. Crude gained 2.3 per cent on Tuesday after Reuters reported that Moscow wants the group to cut production by about 1 million barrels a day at its October 5 meeting. A host of banks including UBS Group AG have also argued the alliance may pare output.

“Any upward move in prices on production cuts could run the risk of it being a knee-jerk reaction as tighter financial conditions could eventually put a cap on its upside,” said Yeap Jun Rong, market strategist for IG Asia Pte. “The key driving force continues to revolve around mounting recession risks.”

Traders were also tracking the progress of Hurricane Ian, which is expected to make landfall on Florida’s west coast late Wednesday. Ahead of that, US energy companies have idled about 190,000 barrels of daily crude production, some 11 per cent of US Gulf of Mexico output, according to government figures.