Crude oil prices start to fall for the first time in six days

Crude oil prices fell for the first time in six days on Friday as the U.S. government considered intervening in the crude oil futures market to curb rising prices and issued permits to buy Russian crude oil to ease a supply shortfall caused by the war in the Middle East, Reuters reported.

Brent crude futures fell 95 cents, or 1.1 percent, to $84.46 a barrel, while West Texas Intermediate (WTI) futures fell $1.08, or 1.3 percent, to $79.93.

Still, Brent has gained 16.4 percent for the week and WTI has gained 19.2 percent. That could be the biggest weekly jump since Russia’s full-scale invasion of Ukraine in February 2022.

The price surge began after the start of the war between the United States and Israel on the one hand and Iran on the other on February 28, which led to the cessation of tanker traffic through the Strait of Hormuz, through which about a fifth of the world’s daily crude oil supplies usually pass. The conflict has spread to key energy regions in the Middle East, causing disruptions in oil production and the shutdown of refineries and liquefied natural gas plants.

Priyanka Sachdeva, senior market analyst at Phillip Nova, said that each day of blocking activity in the Strait of Hormuz has two main consequences: the inability to store about 20 million barrels of crude oil per day and the cessation of its entry into the world market, which could further push up global energy prices.

Amid the risk of further price increases, the US Treasury Department may announce measures to contain them, including possible action on the crude oil futures market. A senior White House official said Thursday, without giving details. The move would be unusual: Washington would seek to influence prices through financial markets rather than through physical shipments of crude oil.

Also on Thursday, the U.S. Treasury Department authorized companies to buy Russian crude oil that is under sanctions and stored on tankers to ease a supply shortage that has caused refineries in Asia to cut back on the fuel. The first approvals came from Indian refiners, who have already bought millions of barrels of Russian crude, effectively giving up on previous pressure to stop such purchases.

An estimated 30 million barrels of Russian crude oil are on ships in the Indian Ocean, the Arabian Sea and the Singapore Strait, including floating storage.

Despite the sharp increase, the current price spike is still smaller than the 2022 energy shock after Russia’s invasion of Ukraine, when crude oil prices topped $100 a barrel.

IG analyst Tony Sycamore said it’s worth putting it in context: despite a nearly 20 percent increase this month, the current price of crude oil is only $3.40 above its four-year average.

Tags: prices