(updates with settlement prices)

By Geoffrey Smith 

Investing.com — Crude oil prices were higher early Monday in New York but came off the seven-year highs posted overnight on a rare sign of spot market slackness in the key Middle East region. 

Newswires reported that the state oil company of Iraq had cut its official selling prices for both European and Asian buyers for December, going against a recent narrative of ever-tighter physical markets in recent weeks. China and India continue to struggle with their domestic energy systems, with flooding across much of China’s coal belt the latest disaster to strike the Chinese energy complex.

The White House, meanwhile, stood by it calls for oil-producing countries to “do more” to support the global economic recovery.

U.S. crude’s benchmark settled up $1.17, or 1.5%, at $80.52 per barrel. WTI peaked at $82.17 earlier, its highest since 2014.

London-traded crude, the global benchmark for oil, settled up $1.26, or 1.5%, at $83.65. Brent hit an intraday high of $84.59 earlier, nearing the key $90 sought by market bulls.

Oil prices ended higher despite Iraq, a key member of OPEC, cutting all of its crude pricing to Asia and Europe in November.

Iraq’s Oil Minister Jabbar Ali Hussein Alluaibi also said that Baghdad has the capacity to pump additional oil if demand justifies it and that his government hoped crude prices over $65 per barrel in the event it maximized production at 5.0 million barrels per day.

A White House official said the Biden administration was closely monitoring the cost of oil and gasoline and “using every tool at our disposal to address anti-competitive practices in U.S. and global energy markets to ensure reliable and stable energy markets.”

Economic data from the U.S. and elsewhere in recent days have pointed to signs of higher inflation, encouraging many to seek a hedge by betting on energy prices which seem firmly underpinned right now. According to CFTC data released on Friday, net speculative long positioning in crude oil futures hit its highest in seven weeks last week, but is still barely at half the level seen in 2018 before Donald Trump started his trade war with China in earnest. 

That would suggest that there is still plenty of room for financial players to be sucked into energy as a hedge against inflation in the short term. However, the broader energy crisis in China and, less acutely, India is already leading to demand destruction in the form of temporary factory closures, while China’s real estate sector – a big energy consumer – is also slowing sharply as fears of debt defaults grow. The Organization of the Petroleum Exporting Countries expects the global market to swing back into a surplus by early 2022, its gradual output increases catching up with global demand as the latter loses momentum.

U.S. output is only slowly responding to the opportunity presented by higher spot prices, with many shale players either unwilling or unable to take on fresh debt to raise output. Data from the U.S. government suggest that output from the Permian basin in Texas has risen by less than 500,000 barrels a day since the start of the year, and even that has been partly offset by falling production in Alaska and – more recently – a temporary but significant weather-related hit to the Gulf of Mexico.

Despite continued high prices for LNG due to Asian and European demand, continue to unwind last week’s spike. They were down 4.0% at $5.3290 per million British thermal units, compared to a high of nearly $6.50 last week. Gasoline RBOB futures, meanwhile, weakened to $2.3839 a gallon.

(With additional reporting by Barani Krishnan)