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Oil up modestly as markets brace for hawkish Powell amid sluggish world data

Published 08/23/2023, 09:00 PM
Updated 08/24/2023, 03:22 PM
© Reuters.
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Investing.com -- Oil prices settled up for the first time in four days though they were still on track to a weekly loss as markets braced for a speech by Federal Reserve Chair Jay Powell that could hint at more U.S. rate hikes ahead.

New York-traded West Texas Intermediate, or WTI , crude settled Thursday’s trade up 16 cents, or 0.2%, at $79.05 per barrel — remaining below the key $80 mark for a second straight day.  

WTI hit a one-month low at $77.59 earlier. The U.S. crude benchmark is down almost 3% week-to-date, after shedding 2.3% last week following a 7-week rally spurred by Saudi-Russian production cuts that lifted WTI by nearly 20%.

Brent settled up 15 cents, or 0.2%, at $83.36 per barrel. The global crude benchmark was down about 1.5% on the week, extending last week’s 2.3% drop after a seven-week rally that gave oil bulls an 18% return.

“Oil prices have come off in the last few days after a powerful rally since late June and then some very choppy trading this month,” said Craig Erlam, analyst at online trading platform OANDA. 

“As yet, price action looks okay but a break below $81-$82 in Brent and things may look less good. That would constitute a break of recent technical support and perhaps either signal or be the catalyst for something deeper.”

Powell, global factory data suppress oil sentiment

Market makers were bracing for the likelihood of the Fed’s Powell delivering a hawkish speech at Jackson Hole on Friday that would further boost the dollar and Treasury yields as the central bank continues its battle against inflation, which it hopes to bring down to its long-term target of 2% from a current 3%.

Global factory activity remained mundane for August, data showed Wednesday as Japan reported shrinking factory activity for a third straight month while the eurozone registered a sharper-than-expected decline and Britain looked set to report weaker economic growth in the current quarter.

U.S. business activity, meanwhile, approached a stagnation point in August, with growth at its weakest since February. Labor market conditions remained tight despite the Fed's aggressive rate hikes. From a base of just 0.25% in March 2020, the central bank has added 5.25% percentage points to rates and could have one or two more upward adjustments before the year is out. 

On the supply side of oil, Saudi Arabia looked set to extend its monthly production cut of one million barrels per day to October — in what would be a third such month of cuts. While the Saudi action, combined with Russian cuts, had initially sent crude prices into a bull frenzy, growing supply around the world in recent weeks offset the earlier market fervor.

U.S. oil production at 3-year highs

For instance, the Energy Information Administration, or EIA, has projected U.S. crude output at 12.8M barrels per day during the week to Aug. 18, making it the agency’s highest such estimate since the record 13.1M barrels produced daily before the coronavirus outbreak in March 2020.

Over the past three weeks, the EIA has constantly raised production estimates for oil by 100,000 barrels each week under a new reporting methodology that accounts for oil potentially flowing from active oil wells compared with those that are drilled but uncompleted — the latter referred to as DUCs.

While the EIA reported that U.S. crude stockpiles fell by 6.135M barrels during the week ended Aug. 18 — on top of the 5.960M-barrel decline in the prior week — the declines were offset by builds in fuel stockpiles. 

Upstaging the crude inventory decline were U.S. gasoline inventories, which registered a surprise build last week against expectations for a drop. Stockpiles of distillates, meanwhile, jumped four times more than forecast, the EIA said.

On the gasoline inventory front, the EIA reported a build of 1.467M barrels, after a slide of 0.261M barrels last week. Analysts had forecast a decline of 0.888M for last week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, there was a climb of 0.945M barrels versus the prior week’s gain of 0.296M. Analysts had predicted a build of just 0.218M for last week. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.

The EIA’s reports on oil and fuel inventories have turned volatile lately as global stockpiles see shifts from Saudi and Russian maneuvers to slash exports amid slower buying from China.

Iran, Venezuela output seen rising too

Adding to global supplies, Iran said its crude output will reach 3.4M barrels daily by end-September despite U.S. sanctions remaining in place.

U.S. officials were also drafting a proposal that would ease sanctions on Venezuela's oil sector, allowing more companies and countries to import its crude oil, if the South American nation moves toward a free and fair presidential election, five people with knowledge of the plans told Reuters.

(Additional reporting by Peter Nurse and Ambar Warrick)

 

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