Oil supply fears drive US benchmark to 7-year high

The US WTI benchmark was trading at more than $81 a barrel, the highest since 2014. Roger Diwan, an oil analyst at consultancy IHS Markit, said: “The market is gripped by fears — fear of stronger demand, fear of a rally contagion from gas and power, fear of missing out on the rally, and the fear to rule them all: supply anxiety.” Prices had dipped last week when Jennifer Gran holm, the US energy secretary, told the Financial Times that Joe Biden’s administration was considering tapping into the nation’s strategic stockpiles to help ease prices at the pump. Rising petrol prices are an unwelcome liability for an administration that has seen its popularity drop. However, the energy department’s announcement on Thursday that there was no plan to release government supply “at this time”, sparked a recovery in prices on worries of tight supplies that have continued in to this week. In wider energy markets yesterday, European gas contracts for November delivery stood at €83.45 per megawatt hour, about double the level at which they traded in mid-August. Brent crude, the international oil benchmark, topped $84 a barrel yesterday, its highest since October 2018. Economists polled by Reuters expect data published tomorrow to show that US consumer prices rose 5.3 per cent in September from the same time last year, marking the fourth consecutive month that headline inflation in the world’s largest economy has topped 5 per cent. Prolonged inflation has piled pressure on the Federal Reserve to raise borrowing costs from record lows. The US central bank has already signalled it is ready to wind down its $120bn a month of pandemic-response bond purchases. “This creates an environment that is ripe for monetary policy mistakes,” said Greg Peters, head of multi-sector and strategy at bond investor PGIM. “The costs of petrol and heating and all the things plaguing global supply chains are exogenous factors that central banks have nothing to do with.”