Oil prices fell Tuesday due to renewed attempts by the US lawmakers to pass the NOPEC bill. In addition, another COVID-19 resurgence threatens to lower demand among major oil importers.
“There’s a whole bunch of stuff going on, and none of it is too good for oil,” said John Kilduff. Kilduff is a founding partner at New York energy hedge fund Again Capital.
Oil Prices Go Down
New York-traded West Texas Intermediate, the benchmark for U.S. crude, went down by 1.2%, or 76 cents, to settle at $62.67 per barrel. Before the markets closed, oil prices fell down to $61.54.
Meanwhile, London-traded Brent, the global benchmark for crude, fell by 0.7 or 48 cents. Brent crude closed at $66.57, but only after enduring a drop to $65.54 earlier in the day.
Major oil-consuming countries such as Japan and India are currently experiencing new COVID-19 surges. India, the third-largest crude oil consumer after China and the United States, is currently overwhelmed with new COVID-19 cases.
Now, India is recording more than 250,000 new infections and over 1,700 deaths a day. As such, the country is now the second leading home of the virus, with over 15 million as of Tuesday.
The United States remains at the top spot with more than 31 million cases. Overall, total global cases of COVID-19 are at 141 million. Until the virus issue gets addressed, India expects to impose new lockdowns, which can significantly reduce demand for oil.
Meanwhile, Japan is also implementing measures to keep the virus under control. The world’s fifth-largest oil consumer will require all incoming passengers to produce proof of a negative COVID-19 test upon arrival at Japanese airports.
Japan will deny entry to those who fail to submit their certification. In addition, both countries postponed a planned foreign and defense ministerial talks scheduled this weekend in Tokyo.
Meanwhile, a US legislative assembly panel passed a bill that can directly affect operations of the Organization of Petroleum Exporting Countries (OPEC). The bill aims to open OPEC to lawsuits for alleged price-fixing practices.
The so-called NOPEC bill stands for No Oil Producing and Exporting Cartel. Introduced by Representative Steve Chabot (R-OH), the bill passed a voice vote in the House Judiciary Committee.
Previous attempts to hold OPEC accountable for oil price increases have yet to show results in Congress for over 20 years. The NOPEC bill, while securing committee-level approval, will now have to seek approval from the entire US House of Representatives.
High Oil Prices Due to Oil Production Restrictions
“It’s high time that we do more to fight … production controls that continue to keep the price of crude oil and gasoline arbitrarily high in the United States,” Chabot told the committee before calling for the vote.
In fact, oil prices already rose 33% for this year. Last Tuesday, it hit $68 per barrel for Brent crude, its highest level in a month. In 2008, the House passed a similar bill when oil rose to more than $100 a barrel.
Prior to the increase in prices, OPEC+, which is OPEC plus Russia and other oil allies, agreed to gradually ease oil output cuts beginning May. This aimed to support many governments’ efforts to reopen their economies.
In addition, US Energy Secretary Jennifer Granholm called on top OPEC producer Saudi Arabia to keep energy affordable for consumers.
US Oil Inventory
According to Investing.com, US crude stockpiles likely fell by 2.9 million barrels last week. This represents lower inventories compared to 3.5 million barrels stockpiles last week.
Meanwhile, gasoline inventories likely went up by 650,000 barrels versus the rise of 309,000 in the prior week. Also, stockpiles of distillates likely declined by almost 900,000 barrels last week after falling by 2.08 million barrels a week earlier.
Watch the Economics AltSimplfiied video reporting how the global economy could look without OPEC?
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