The Commodities Feed: The Fed goes big
While oil prices saw a brief spike following the Fed’s 50bp rate cut, the market settled marginally lower on the day. In early morning trading in Asia, oil is again under pressure. Expectations for a 50bp cut had grown in recent weeks, so the move was largely priced in.
For oil, that means attention will likely turn back to demand worries. China has obviously been the key concern when it comes to demand, but there have also been reports of refiners in Europe cutting run rates due to poor margins.
EIA weekly numbers yesterday showed that US commercial crude oil inventories fell by 1.63m barrels over the last week, somewhat different to the 1.96m barrel build the API reported the previous day. US commercial crude oil inventories are now at their lowest level in a year. Crude inventories at the WTI delivery hub, Cushing, also fell by 1.98m barrels over the week to 22.71m barrels, which will also create noise around inventories nearing tank bottoms and provide some support to prompt WTI timespreads. The draw in inventories was driven by trade. Crude oil exports grew by 1.28m b/d WoW, while imports fell by 545k b/d. On the refined product side, small builds were reported. Gasoline and distillate stocks increased by 69k barrels and 125k barrels respectively. Gasoline demand continues to trend lower following the end of the summer driving season. The 4-week average implied demand number fell by 104k b/d WoW to 8.88m b/d.
The US administration is looking to buy 6m barrels of crude oil for the Strategic Petroleum Reserve (SPR) for delivery February-May 2025. Given the recent weakness in oil prices, it makes sense for the Department of Energy (DoE) to increase purchases to refill the SPR. The DoE’s target price is below US$79.99/bbl, while WTI early 2025 forwards are trading sub-$69/bbl currently.