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Oil up; Dollar, impending U.S. stockpiles report limit gains  

Published 09/25/2023, 09:05 PM
Updated 09/26/2023, 03:01 PM
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Investing.com - Oil prices staged their strongest comeback on Tuesday from a week-long spotty run that raised questions on the market’s three-month rally. 

Gains were, however, limited by the unwavering dollar and uncertainty over how demand for U.S. crude and fuels might have fared last week.

New York-traded West Texas Intermediate, or WTI, crude for delivery in November settled at $90.39 per barrel, up 71 cents, or 0.8%, on the day. The U.S. crude benchmark had closed down in four of the last six sessions. 

The volatility came after WTI hit a 10-month high of $93.74 on Sept. 19, capping a rally that had delivered a net gain of around 30% since the end of May to those long U.S. crude.

“WTI found buyers at the ascending Daily Middle Bollinger Band of $88.20 but further gains are subject to immediate overhead resistance at $90.97,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com. 

Tuesday’s peak for the U.S. crude benchmark was $90.72.

London-traded Brent for November settled at $93.96 a barrel, down 67 cents, or 0.72%. 

Like WTI, Brent had settled down in four of the last six sessions, after hitting a 10-month high of $95.96 on Sept. 19. The global oil benchmark hit a snag after a cumulative gain of around 30% over the past three months.

“Oil prices have rallied strongly on the back of supply restrictions and the economy failing to live up to expectations was always going to be one of the primary counter-risks for the price,” said Craig Erlam, analyst at online trading platform OANDA. 

“I wouldn't say that is now unfolding but clearly, investors are a little concerned about whether the economy can sustain current levels of interest rates for a prolonged period of time.”

King Dollar extends run-up

The Dollar Index extended its run up on Tuesday, hitting its highest since November. A stronger dollar discourages buying of dollar-denominated commodities, including crude, by holders of other currencies.  

The dollar has seen a resurgence since the Fed 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.

Fed Chair Powell told a news conference last week that energy-driven inflation was one of the central bank’s bigger concerns.

“We are prepared to raise rates further, if appropriate," Powell said. "The fact that we decided to maintain the policy rate at this meeting doesn't mean we have decided that we have or have not at this time reached that stance of monetary policy that we are seeking."

The Fed had raised interest rates 11 times between February 2022 and July 2023, adding a total of 5.25 percentage points to a prior base rate of just 0.25%. 

Economists fear that the Fed’s renewed hawkish stance will dampen global growth though many also agree that a lid has to be put on oil prices if the Fed is to achieve its annual inflation target of 2%.

U.S. stockpiles data awaited

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Sept 22. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 1.65 million barrels, versus the 2.135M reduction reported during the week to Sept 15.

On the gasoline inventory front, the consensus is for a slide of 0.050M barrels over the 0.831M-barrel decline in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, the expectation is for a drop of 2.0M barrels versus the prior week’s deficit of 2.867M. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.

(Peter Nurse and Ambar Warrick contributed to this item)

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