Commodities

Oil Gains as Bulls Hold on to Weak Dollar after U.S. Stockpile Jump by Investing.com


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By Barani Krishnan

Investing.com — From foe to friend: the dollar’s about-turn over the past week has helped oil longs find their feet in a market still beset with volatility and less-than-flattering fundamentals.

Despite data from the government showing an increase in crude oil inventories last Wednesday, crude prices rose strongly Wednesday. This was due to players taking advantage of a weak dollar as well as a tumble in Treasury yields.

“It’s a risk-on day across markets and oil is benefiting from that, although crude’s fundamentals, on their own, are questionable,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

New York-traded crude oil, which is the benchmark for U.S. crude oil, was up 3.4% at $88.39 per barrel by 13:02 ET. This follows little movement in the previous four sessions.

London-traded oil, which is the global benchmark, was up 2.5% at $94.05 a barrel. 

The, which compares the greenback to the euro, yen and pound, Canadian dollars, Swedish krona, Swiss franc and Canadian dollar, fell for the fifth day in succession, falling below 110 from a peak of almost 115 on Sept. 28.

The benchmarked bond yields to the were at 4.007, against an Oct. 21 peak high of 4.338.

After data from Commerce Department showed that the U.S. was down 11% in September, it reversed the large gain of the previous month. This was due to spiraling lending rates which choked off potential buyers.

The Federal Reserve may ease off its aggressive rate-hike policy that had weighed on risk across all markets by the tumble in home sales.

In an attempt to combat the four-decade highs, the Fed has increased key by 300 basis points from a level of just 25, in February. 

The central bank stated that it still has a lot of work to do before it can consider a pause in or reduction in rates. It also indicated that another 125 basis point will likely be added before year’s end. The only caveat to this would be weak economic data, the Fed said — and that’s exactly what markets were betting on Wednesday via the drop in home sales.

According to the Energy Information Administration, oil prices rose by 2.588million barrels last month, which was lower than the expected increase of 1.029million barrels.

Despite record-breaking crude exports for the week, at 5.129m barrels per day on average, and a relatively small outflow of only 3.4m barrels from U.S. Strategic Petroleum Reserve, the buildup in crude stockpiles occurred.

Crude stockpiles rose on lower refining activity across most of the United States, with utilization rates at below 90% on the average — except for the East Coast, where demand for fuels kept utilization at virtually 100% as refineries ran at full steam.

, meanwhile, fell by 1.478 million barrels, against expectations for a draw of 0.805 million barrels — serving as the outlier for the EIA data. Wednesday’s gain was greater than 1%

Stockpiles rose for the second week in succession, increasing by 170,000 barrels last weekend, compared to expectations for a draw at 1.138 million barrels. In the previous week, inventories of distillates — alternatively known as heating oil and as Ultra Low Sulfur Diesel — rose by 124,000 barrels.

U.S. prices rose 3% on Wednesday, after an 11% plunge over the past three weeks — unusual for this time of year when prices should actually be higher in the runup to winter.

Heating oil has a 55% annual growth. Distillates don’t just produce heating oil; they are also refined into the diesel needed for trucks, buses, trains and maritime vessels, as well as the fuel for jets. 

Despite their diversity in use, the bulk of heating oil’s annual price gain now is a carry-forward of the supply hype from March, when fears of a run-out of the commodity in the aftermath of the Ukraine war sent the commodity to record highs. 

The reality since is that the supply situation hasn’t really matched the pitch those fears were initially voiced at. This is similar in nature to the dynamics revolving about, where a global game of cat-and-mouse is being played by the West against the Russians over the use or potential misuse of gas as a weapon of wartime bargaining chips.

Heating oil futures hit a three-week low of $3.52 per gallon in Monday’s trading session after the surprise distillate build of 124,000 barrels announced by EIA for the week to Oct. 14 coincided with unseasonably warm temperatures for mid-to-late October. 

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