Oil drops after hitting multi-year high amid global energy crunch

Oil dropped on Wednesday after hitting a multi-year high above $83 a barrel, pressured by an American Petroleum Institute (API) report showing rising crude inventories in the United States and technical indicators suggesting prices have rallied too fast.

The latest surge in the price of crude was underpinned by the refusal of the Organisation of the Petroleum Exporting Countries and allies to boost output faster and comes against a backdrop of concern about tight energy supply globally.

On Monday, OPEC, Russia and other allies, known as OPEC+, chose to stay with a plan to increase output gradually and not boost it further as the United States and other consumer nations have been urging.  

Brent crude rose as high as $83.47, the highest since October 2018, and at 1335 GMT was down $0.98, or 1.2%, at $81.58. US crude climbed to $79.78, the highest since November 2014, before retreating to trade $0.71 lower at $78.22.

"An energy crisis is unfolding with winter in the northern hemisphere still to begin, and sets the stage for even higher oil prices," said Stephen Brennock of oil broker PVM.

The price of Brent has surged more than 50% this year, adding to inflationary pressure that could slow recovery from the Covid-19 pandemic. Natural gas has surged to a record peak in Europe and coal prices from major exporters have also hit all-time highs.  

Jeffrey Halley, analyst at brokerage OANDA, said both crude contracts looked overbought based on a widely followed technical indicator, the relative strength index.

"That may signal some daily pullbacks this week but does not change the underlying bullish case for oil," he said.

Some downward pressure came from the API's figures showing signs of slowing fuel demand.

The industry group said US crude inventories rose by 951,000 barrels in the week to October 1, website Oilprice.com reported, and gasoline and distillate fuel inventories also climbed.