Oil prices ae setting up for a “V” bottom as the Fed gives us a jumbo rate cut shaking out some hedge fund shorts from their bearish oil obsession. This came against the latest data from JODI that shows record global oil demand and falling global inventories.
At first the markets took the 50-basis point cut with a surge of euphoria. Then the markets pulled back on concerns that the 50-basis point cut was because the Fed sees problems with the global economy.
It’s possible the market started to pull back and rally because they saw the rate cut as political. Of course, we all know that the Federal Reserve is not political at all. I am sure if the Fed decided not to cut rates going into an election nobody would get upset.
Yet it was a landslide vote in the Fed almost as large as the Teamsters vote for President Donald Trump. There were 11 out of 12 fed voters that said yes to the dress, I mean the cut, which puts the benchmark fed-funds rate to a range between 4.75% and 5%. The Quarterly dot plot reported that a slight majority of fed voters think they would lower rates by at least a quarter point each at meetings in November and December.
Yet regardless of the reasons for the cut or the outlook for future cuts, ultimately the cut is going to be bullish for stocks and commodities and especially oil. In the latest Jodi Report, they reported that global crude oil inventories fell by 12.5 million barrels in July while global demand rose by 56,000 barrels a day in July up an impressive 1.7 million barrels a day. Product inventories were up by 46.6 million barrels and that may be one reason for the market’s reluctance to surge.
The Energy Information Administration (EIA) was also supportive after another big draw in Cushing, Oklahoma. The EIA as reported by Reuters showed that U.S. crude oil stockpiles dipped to their lowest level in a year last week, while fuel inventories rose, the Energy Information Administration (EIA) said on Wednesday. Crude inventories fell by 1.6 million barrels to 417.5 million barrels in the week ending Sept. 13, the EIA said, compared with analysts’ expectations in a Reuters poll for a 500,000-barrel draw.
Stocks, excluding the Strategic Petroleum Reserve, hit their lowest level since September 2023. In the Midwest, crude inventories declined to their lowest since December 2014. That’s a bit of support because of temperatures that are expected to be above average for the next couple of weeks but there could be some downside pressure as we continue to recover from the Gulf of Mexico shutdowns after Hurricane Francine. The key thing is to keep an eye on the Atlantic because there could be some more storms so make sure you download the Fox Weather app.
Fox Weather reported that “Odds grow for tropical disturbance in the Caribbean, Gulf of Mexico as Central American Gyre stirs. The growing concern is linked to a phenomenon known as the Central American Gyre, which has historically contributed to tropical storm formation in the Caribbean or Gulf of Mexico in the early spring or autumn.