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Oil up over 3% as U.S. storage draws defy lower fuel demand

Published Sep 26, 2023 08:53PM ET Updated Sep 27, 2023 03:16PM ET
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Investing.com - Oil prices jumped more than 3% Wednesday, with U.S. crude hitting a 10-month high above $94 a barrel, as traders responded to another weekly drop in crude stockpiles in the United States even as demand for fuels fell amid a seasonal decline in road travel.

New York-traded West Texas Intermediate, or WTI, crude for delivery in November settled at $93.68 per barrel, up $3.29, or 3.7%, on the day. The session peak was $94.14, the highest the crude benchmark had gotten to since November. 

London-traded Brent for December delivery settled at $94.36 a barrel, up $1.93, or 2.1%. Brent’s peak for the day was $94.78. The global crude benchmark’s prior high was $95.96 on Sept. 19.

Oil prices have jumped more than 30% over the past three months in response to production squeezes by Saudi Arabia and Russia, though the rally hit a bump last week on economic and demand concerns.

But data on Wednesday from the U.S. government showing crude stockpiles falling a second week in a row reignited the run-up in oil.

The U.S. crude inventory balance fell by 2.169 million barrels during the week ended Sept. 22, according to the Weekly Petroleum Status Report of the U.S. Energy Information Administration, or EIA. Analysts tracked by Investing.com had expected a crude draw of 0.9M barrels instead for last week to add to the 2.135M drop in the prior week to Sept. 15.

Aside from the headline drop in crude stockpiles, the EIA cited a drop of  0.943M barrels last week at the Cushing, Oklahoma hub that serves as a central delivery and storage point for U.S. crude. In the prior week, the API reported a Cushing deficit of ​​2.064M barrels.

Cushing, Cushing and Cushing

“It’s all about Cushing now, and not without reason, as it’s something that’s making the market very uncomfortable despite the seasonal drop in fuel consumption,” said John Kilduff, partner at New York energy hedge fund Again Capital.

Cushing inventories, already at their lowest since July 2022, are nearing historically low levels after refiners processed more than typical volumes of oil during the just-ended summer. Runaway exports of U.S. crude, particularly for a new grade called WTI Midland — which is comparable to the viscosity of the heavier Arab and Russian oils — have deepened the drain at Cushing. U.S. exports have made inroads into markets underserved by the declines in Saudi and Russian production.

As Cushing inventories continue to fall, analysts said questions are growing about the quality of the remaining oil at the hub and its potential to fall below minimum operating levels.

The situation at Cushing juxtaposes the picture of fuel demand in the United States, which has been on the decline since the summer made way for the autumn, or fall season, that began on Sept. 23.

U.S. fuel demand down though 

The EIA reported reported a gasoline inventory gain of 1.027M barrels for last week. The forecast consensus had been for a gasoline draw of 0.5M barrels that would have added to the prior week’s decline of 0.8311M. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, there was a rise of 0.398M barrels versus the expected draw of 1.0M and the prior week’s drop of 2.867M. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.

As both WTI and Brent close in on the Saudi target for $100 a barrel, some analysts say economic ructions are likely to show up as energy-driven inflation weighs heavily on global finances.

The eurozone posted abysmal money supply data that showed a record drop in the amount of money in circulation as banks refrained from lending and depositors kept money in savings. ​

Over in the United States, orders for long-lasting or durable goods rose a stronger-than-expected 0.2% in August, though the increase stemmed from higher defense spending as Washington sought to replenish politically-sensitive military hardware sent to Ukraine.

In a more positive sign, the so-called core orders of durable goods jumped 0.9%. That figure omits defense and transportation and is a proxy for broader business investment.

Two sides to U.S. growth story

But the U.S. growth story isn’t entirely one-way. US consumer spending, already easing on inflation concerns, could witness a sharper slowing in the final three months of the year as labor market and wage growth cool as well, Fitch Ratings said in an economic outlook published Wednesday. It forecast real spending to slow to an annualized rate of 1.2% in 4Q23 and contract by 0.8% in 1Q24 and 3% in 2Q24.

Fitch’s outlook was published a day after The Conference Board, a group that measures US consumer trends, said consumer confidence tumbled for a second month in a row in September, nearing recession levels, as Americans continued to cut spending amid rising inflation.

The Dollar Index got to highs not visited since November 2022. A stronger dollar typically discourages those holding other currencies from buying dollar-denominated commodities, including oil and gold.

Treasury yields, benchmarked to the U.S. 10-year note, shot to fresh 16-year highs on Tuesday, reaching peaks not seen since July 2007.

The two alternatives to gold surged since the Federal Reserve last week projected another quarter-percentage point rate increase by the year-end, despite leaving rates unchanged for September at a policy meeting on Wednesday.

Concerns over the global economy and the overwhelming strength of the dollar could ultimately slow the oil rally again, said those who have been watching both.

"The market is overbought and a correction is definitely needed," Dennis Kissler, senior vice president of trading at BOK Financial, said in comments carried by Reuters.

(Peter Nurse and Ambar Warrick contributed to this item)

 

Oil up over 3% as U.S. storage draws defy lower fuel demand
 

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Comments (15)
Ri O
Ri O Sep 28, 2023 7:27AM ET
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"I did that" Biden
Conrad Conrad
Conrad Conrad Sep 27, 2023 6:27PM ET
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Writing is on the wall. If you look at charts of DXY vs. Oil price, there was always the perfect inverse correlation right up to COVID! Now looking at the chart Crude seems to be lock step with DXY ever since the $trillions washed over the economy. Is the GIG up for the Dollar? Charts seem to say so. UAE and China via 3rd parties did a LNG deal in March, needless to say it wasn't in $Dollars. I've not been able to find any analysis done as of yet regarding the anomaly. I also believe the DXY is not that relevant as a comparator because of the dilution of the $$. DXY@106 in 2000, had substantially more buying power then todays close of 106.4.
Warm Camp
Warm Camp Sep 27, 2023 6:27PM ET
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Oil goes inverse to USD in balanced market. Present oil market is highly misbalanced and, accordingly, inverse correlation to dollar disappears.
Brad Albright
Brad Albright Sep 27, 2023 6:27PM ET
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With the exception of a dive for a day or two in 2020 when oil went to -$11, yes that's minus -- people were being paid to take oil, storage was overrun -- oil has been moving in tandem with the US dollar since 2018.
Gary Offill
Gary Offill Sep 27, 2023 5:29PM ET
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death to the oil traders
Matt Kay
Matt Kay Sep 27, 2023 5:29PM ET
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oil cartels*
Warm Camp
Warm Camp Sep 27, 2023 4:56PM ET
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A couple of losers trying to blame own stupidity on Putin.
Barani Krishnan
Barani Krishnan Sep 27, 2023 4:56PM ET
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Putin is the beginning and the end to the Ukraine problem as it exists now. And the Ukraine factor is one of -- not only -- that's driving upward pressure on oil prices. Those fingering him aren't entirely wrong.
Ramon Diaz
Ramon Diaz Sep 27, 2023 4:20PM ET
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There was so called huge oil storage, right? Ha ha ha
Barani Krishnan
Barani Krishnan Sep 27, 2023 4:20PM ET
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Not at Cushing. That has been in decline for a while. The higher inventories were at federal level. Read the story more closely to see what's driving the draws at Cushing. Not everything is meant to be meant to be a joke.
Maximus Maximus
Maximus Maximus Sep 27, 2023 4:17PM ET
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those in need of blaming anyone and who still reside in the realm of reality. blame russia and the saudis for manipulating the market
Mark Jannetty
Mark Jannetty Sep 27, 2023 4:17PM ET
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you said reality. That's Democrat propaganda reality, not real world
Undefined Enigma
Undefined Enigma Sep 27, 2023 4:17PM ET
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As far as I'm aware the Saudi's are not under sanctions, and they are well within their rights to not overproduce oil at low prices to compete at sanctioned levels that has nothing to do with them. Also, Russia due to the sanctions was overproducing oil, and made it difficult for OPEC nations to deal with their own quotas and eroding into theirs.
Maximus Maximus
Maximus Maximus Sep 27, 2023 4:17PM ET
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mark my post clearly excludes deluded trolls like you
Maximus Maximus
Maximus Maximus Sep 27, 2023 4:10PM ET
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If you want low oil prices it's simple. force russia out of Ukraine.
Mark Jannetty
Mark Jannetty Sep 27, 2023 4:10PM ET
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it's much easier to get rid of the cause of high oil = joe Biden
Mirza Gusic
Mirza Gusic Sep 27, 2023 4:10PM ET
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hahaha that is not problem with that you will spike prices more ,problem is our gov
Barani Krishnan
Barani Krishnan Sep 27, 2023 4:10PM ET
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Maximus, half of those (perhaps more) coming in to comment here are headline clickers with nary an original idea of their own about the market except an uniformed hatred for the leadership.
Maximus Maximus
Maximus Maximus Sep 27, 2023 4:10PM ET
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Barani, exactly so
Abduramaan Mahammsd
Abduramaan Mahammsd Sep 27, 2023 4:09PM ET
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I live in Ethiopia I am no many haw itti transfer $500 I help you
EL LA
EL LA Sep 27, 2023 4:07PM ET
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If you want low oil prices it's simple. Negotiate for peace in Ukraine.
Mark Jannetty
Mark Jannetty Sep 27, 2023 4:07PM ET
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nothing to do with oil prices
Barani Krishnan
Barani Krishnan Sep 27, 2023 4:07PM ET
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Let Putin have his way is what you're saying, so he can annexe another territory, and another and ..
Mark Jannetty
Mark Jannetty Sep 27, 2023 4:07PM ET
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Mark Jannetty plus we need a leader back that can negotiate
Barani Krishnan
Barani Krishnan Sep 27, 2023 4:07PM ET
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Mark Jannetty  I know who you're referring to and there'll be no negotiation there if it happens; there'll just be a bloc US withdrawal to force the rest of NATO, G7 to follow
Casador Del Oso
Casador Del Oso Sep 27, 2023 3:37PM ET
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Higher crude oil prices for longer. Unfortunately...
Barani Krishnan
Barani Krishnan Sep 27, 2023 3:37PM ET
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The U.S. oil industry has been co-opted into Aramco
 
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