Crude oil futures joined the rally in the broader financial markets in the middle of the trading week, driven by a surprise drawdown in domestic inventories, a weaker greenback, and Hurricane Ian. Can oil prices sustain the momentum in overnight trading?
October West Texas Intermediate (WTI) crude futures surged $3.81, or 4.65%, to $82.15 per barrel on Wednesday on the New York Mercantile Exchange. US crude prices have been recording steady gains in recent sessions. In overnight trading, WTI futures have traded relatively flat.
Brent, the international benchmark for oil prices, also soared midweek. December Brent crude futures advanced $3.95, or 3.52%, to $89.32 a barrel on London’s ICE Futures exchange. Brent had also been traveling sideways in overnight trading.
According to the US Energy Information Administration (EIA), domestic supplies of crude dropped by 215,000 barrels in the week ending September 23, falling short of the market estimate of a 443,000-barrel build. Supplies at the Cushing, Oklahoma storage facility added 692,000 barrels.
Gasoline inventories plunged by 2.422 million barrels, distillate stocks plummeted by 2.892 million barrels, and heating oil supplies rose by 417,000 barrels.
In addition, in response to Hurricane Ian, roughly 190,000 barrels per day of crude production in the Gulf of Mexico was shut-in. This represented about 11% of the Gulf’s total production.
A weaker buck also supported crude prices on Wednesday as the US Dollar Index (DXY) slipped 1.22% to below the 113.00 mark. The DXY, which measures the greenback against a basket of currencies, has been on a tear this year, soaring close to 18%. In the Asian trading session, the index was up about 0.5% to above 113.00. A strengthening greenback is bearish for dollar-denominated commodities because it makes it more expensive for foreign investors to purchase.
Meanwhile, Goldman Sachs slashed its 2023 oil price forecast, citing weakening demand and a stronger US dollar. However, the Wall Street titan maintained its long-term bullish outlook due to global supply imbalances.
Next week, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, will meet where it could cut production by around one million barrels per day to support prices.
“With OPEC talking about cutting production by a million barrels a day and the possibility that the SPR releases will stop, the odds are that we are going to continue to be in an oil deficit especially when demand picks up this winter,” wrote Phil Flynn, the author of The Energy Report.
In other energy commodities, October natural gas futures rose $0.053, or 0.76%, to $7.008 per million British thermal units (Btu). October gasoline futures were flat at $2.4593 a gallon. October heating oil futures were also unchanged at $3.3408 per gallon.Crude oil futures joined the rally in the broader financial markets in the middle of the trading week, driven by a surprise drawdown in domestic inventories, a weaker greenback, and Hurricane Ian.