Oil slumps over 4% as Biden aims to drive down U.S. fuel prices

© Reuters. FILE PHOTO: A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant/

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices tumbled on Wednesday as U.S. President Joe Biden intensified his efforts to cut fuel costs for drivers and as Wall Street slid on fears that rate hikes by the Federal Reserve could push the U.S. economy into recession.

Biden is expected to ask the U.S. Congress to consider a three-month suspension of the 18.4 cents per gallon federal tax on gasoline and call on states to suspend their fuel taxes, a senior administration official said.

While lower pump prices could actually boost demand for fuel and support crude prices, PVM analyst Stephen Brennock said traders could be worried the Biden administration might take further measures to cool high energy prices.

Brent crude futures were down $4.76, or 4.2%, to $109.89 a barrel by 11:08 a.m. EST (1508 GMT). It hit a session low of $107.03 a barrel, lowest since May 19.

U.S. West Texas Intermediate (WTI) futures fell $5.11, or 4.7%, to $104.41 a barrel. The session low was $101.53 a barrel, lowest since May 11.

Oil prices often move in tandem with stocks, which also took a hit as investors assessed how interest rate hikes designed to cool soaring inflation might stall an economic recovery. [MKTS/GLOB]

Prices pared losses after Fed Chair Jerome Powell pledged an "overarching focus" on bringing down inflation and reiterated that ongoing increases in the Fed's policy rate would be appropriate, with the pace depending on the economic outlook.

"Powell seemed to change the mood of the market by seeming confident about the U.S. economy," said Phil Flynn, analyst at Price Futures. "His words have soothed the market and put a bottom on prices for the short-term."

Lawmakers of both major parties have expressed resistance to suspending the federal gasoline tax, which Biden was expected to announce at 2 p.m. EDT (1800 GMT).

The White House asked the CEOs of seven oil companies to a meeting this week to discuss ways to increase production capacity and reduce gasoline prices of around $5 a gallon as they make record profits.

Chevron (NYSE:CVX) CEO Michael Wirth said criticizing the oil industry was not the way to bring down fuel prices and the government should change its approach. Biden replied he was unaware oil executives could "get their feelings hurt that easily."

Global supply is still expected to lag demand growth, as flagged this week by trading giant Vitol and Exxon Mobil Corp (NYSE:XOM).

The $2.4 trillion set to be invested in energy this year includes record spending on renewables but falls short of plugging a supply gap and tackling climate change, the International Energy Agency said.

U.S. oil refining capacity fell in 2021 for the second year in a row, government data showed.