TPCCrude oil: Middle East in focus

Performance

WTI crude oil had surged on Tuesday on the incident of pager blasts in Lebanon which killed eight people and injured hundreds; however, yesterday, it settled 0.83 per cent lower at $69.38 despite a 50-bps cut by the Fed.   

FOMC monetary policy decision

The US Federal Reserve, as the markets largely expected, slashed the Fed Fund rate by 50 bps to 4.75 per cent-5 per cent range. Commodities rallied soon after the rate cut decision only to reverse their gains to fall sharply lower as the Fed Chair Powell’s presser was balanced. Powell said that the 50-bps point rate cut was to ensure that the central bank is not behind the curve as the Fed is committed to its dual goals of inflation control and maximum employment. He added that the US economy was in a good shape and inflation was headed lower to the Fed’s target of 2 per cent.

The US Dollar Index recovered as Powell ruled out a recession possibility in near term. He cited a strong labour market amid cooling inflation. In addition, he added that a 50-bps point is not going to be the usual norm as going forward the Fed will go data by data to decide its monetary policy.

The US yields surged on his comments, which weighed on commodities complex severely.  The US bonds have continued to decline today also.   

Traders’ focus will be on the Bank of England’s monetary policy decision due today. Although the Bank is not expected to lower rates today, its monetary policy stance will be closely scrutinised. 

Data roundup

UK inflation data were in line with the forecast. Consumer prices rose 2.2 per cent from a year earlier, the same pace as the previous month.

US housing starts (August) came in at 1356K verssus the forecast of 1318K. Building permits (August) came in at 1475K Vs the forecast of 1410K as the prior data was revised higher from 1396K to 1406K.

Upcoming data and event

Today’s US data on tap include Total Net TIC flows (July), current account balance (2Q), Philadelphia Fed Business Outlook (September), weekly job data and existing home sales (August).

The Bank of England will deliver its monetary policy decision today. It is expected that the Central Bank, having slashed benchmark rates to 5 per cent in its previous meeting, will go for a pause in this meeting; however, with two monetary policy meetings still left this year, it is expected that the Bank will cut rates twice more.  

US weekly DoE crude oil data

DoE weekly data were somewhat positive for the counter. US inventories dipped by 1630K barrels (forecast 213K b), Cushing stocks were down by 1979K barrels, gasoline inventories rose by 69K (forecast 1140K barrels), while distillate inventories were up by 125K barrels (forecast 994K barrels). 

Refinery utilisation in the week ending September 13 edged lower by 0.70 per cent (Forecast -1.26 per cent). US crude oil stocks fell to the lowest levels in almost a year to 417.50 mb. Crude oil implied demand was 19755 Kbpd as compared to 20048 Kbpd in the previous week. gasoline demand sunk further below 9 mbpd, the second straight week of falling below this mark. 

US gasoline inventories rose to the highest level since early August as inventories reached 221.60 mb. US Crude oil production fell to 13.20 mbpd, the lowest since June.

Outlook

WTI crude oil is expected to find good support into the dips as apart from the Fed cutting rates by 50-bps, geopolitical tensions are back in focus after a second of devices’ explosions rippled through Lebanon and the region killing 8 people and injuring over 300. With Israel looking to carry out its offensive against Hezbollah to the next level, traders will monitor the evolving situation in the Middle East closely for possibility of disruptions to the oil supplies.

Near-next month spread remains in a deep backwardation of over $1.

WTI Crude oil may rise to $72 in the near term. Support is at $67. Buying the dips is advisable.   

(Disclaimer: Praveen Singh is a senior fundamental research analyst of currencies and commodities at Sharekhan. Views expressed are his own.) 

First Published: Sep 19 2024 | 10:28 AM IST