Oil prices slumped on Friday afternoon amid swirling rumours of impending interest rate hikes and President Biden releasing stored supplies.
WTI Crude plummeted 1.89 per cent to $80.03 a barrel, while Brent Crude futures dropped 1.69 per cent to $81.49, wiping out gains from the past week.
Both benchmark crude contracts were poised to end the week lower after sharp swings driven by a strengthening dollar.
This follows reports the Federal Reserve could push forward interest rate increases to combat inflation.
There is also continued speculation Biden administration might release oil from the U.S. Strategic Petroleum Reserve to cool prices.
Callum Macpherson, head of commodities at Investec, told City A.M. that rising US government bonds were also influencing benchmark behaviour.
He said: “The drop in oil prices is being largely attributed to the possibility of the US releasing strategic reserves. However, it’s worth noting that the move down has been in tandem with recent falls in equities and rises in US government bonds, so more general risk aversion might also be playing its part.”
He also anticipated prices will recover.
Macpherson added: “The market is very tight at the moment. As a result, if Biden does not do something soon to actually release reserves, then (all other things being equal) the market is likely to strengthen again.”
There are encouraging demand factors such as the return of air travel, but tighter monetary and fiscal policy and a fast-approaching northern hemisphere winter will act as a dampener.
Meanwhile, OPEC cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day from last month’s forecast.
OPEC+ recently committed to 400,000 barrels per month through 2022.