Crude Oil, WTI, Brent, FOMC, Inventory, EIA, Putin, Crack Spread – Talking Points
- Crude oil prices trade slightly lower amid a risk-off move in Asia-Pacific markets
- FOMC is in focus as the main price driver, with inventory data also on tap
- A speech from Russian President Vladimir Putin may increase market volatility
Crude oil prices are slightly lower in Asia-Pacific trading as equity markets fall following a downbeat US session. A strong US Dollar is weighing on the commodity ahead of tomorrow’s FOMC rate decision. The US central bank is expected to increase its benchmark rate by 75 basis points. However, a 100-bps move is also possible, according to Fed funds futures. Oil traders are keen to review the Fed’s updated economic projections via the Summary of Economic Projections (SEP), which are expected to trim growth forecasts from June’s SEP.
The market’s net view of the FOMC’s appetite for further tightening will likely dictate where oil prices go. A hawkish one would likely be a negative, while a dovish interpretation would likely provide a tailwind. Rate hikes are expected from The Swiss National Bank (SNB) and the Bank of England (BoE), adding to a chorus of rising global interest rates.
Russia’s President, Vladimir Putin, is expected to deliver a speech today after initial delays. Analysts fear that Mr. Putin may escalate the fight against Ukraine, with the conflict mostly contained to the east following a largely successful Ukrainian counteroffensive. If an escalation is announced—a likely outcome, given the recent news of planned referendum votes on the annexation of Ukrainian territories–it would likely send oil prices higher.
Markets are set to digest updated inventory data from the US Energy Information Administration (EIA) tomorrow. Analysts see crude oil stocks rising by 2.16 million barrels for the week ending September 16, in line with the prior week’s 2.44 million barrel increase. The American Petroleum Institute (API), a trade association, reported a 1.03 million barrel increase for the same period. That would be the fourth straight inventory build, albeit a smaller one from last week’s 6.03 million barrel addition.
China’s oil imports have slowed, according to customs data released earlier this week. The data for August revealed a 9.4% decline in oil imports from a year ago, although inbound Russian oil rose nearly 30% during the same period. Meanwhile, OPEC data showed that the cartel is struggling to keep up with its production goals, with a shortfall of around 3.5 million barrels per day (bpd). A drop in Nigerian output due to poor investment and theft saw the African country’s August output fall to 1.18 million bpd, the lowest level this year.
An increase in the US 3:2:1 crack spread, a proxy gauge for refiners’ profit margins, has increased over the last week after hitting its lowest point since March. That is a bullish signal for oil demand, although the gauge is relatively subdued to levels traded over the last few months. A large rebound in gasoline demand in the United States is hard to see amid the aggressive increase in interest rates. Overall, the FOMC is set to drive prices in the short term.
WTI Crude Oil, 3:2:1 Crack Spread, API US Oil Stocks Change – Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
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