Oil prices settle higher on talk of an SPR refill

Price action

• West Texas Intermediate crude for October delivery
  CL.1,
  +1.08%

  CL00,
  +1.08%

  CLV22,
  +1.08%
  rose $1.17, or 1.3%, to settle at $88.48 a barrel on the New York Mercantile Exchange, the highest since Aug. 31, according to Dow Jones Market Data.

• November Brent crude
  BRN00,
  -0.32%

  BRNX22,
  -0.32%,
  the global benchmark, was up 93 cents, or 1%, at $94.10 a barrel on ICE Futures Europe.

• Back on Nymex, October gasoline
  RBV22,
  +1.42%
  added 1.8% to $2.5245 a gallon, while October heating oil
  HOV22,
  -4.91%
  slumped 4.6% to $3.3789 a gallon.

• October natural gas
  NGV22,
  +9.25%
  rose 10% to $9.114 per million British thermal units.

Supply data

The Energy Information Administration on Wednesday reported that U.S. crude inventories rose by 2.4 million barrels for the week ended Sept. 9. The EIA also said gasoline stockpiles declined by 1.8 million barrels last week, while distillate stocks rose by 4.2 million barrels.

The American Petroleum Institute late Tuesday had reported a weekly crude supply climb of 6 million barrels, according to news reports.

Analysts surveyed by S&P Global Commodity Insights, on average, expected the EIA to report that crude inventories rose by 1.2 million barrels. They also forecast inventory declines of 1.6 million barrels for gasoline and 800,000 barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 200,000 barrels for the week, the EIA said, while stocks in the Strategic petroleum Reserve dropped by 8.4 million barrels to 434.1 million barrels.

Also read: High fuel costs will continue to contribute to the rise in food prices

A few other factors may impact crude in the days and weeks ahead, said Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.

There’s a potential storm tracking towards the Gulf of Mexico,” he said. Storms could disrupt production in the Gulf.

Also, the Biden administration reportedly may be looking to replace oil stocks in the Strategic Petroleum Reserve at $80 a barrel.

That “supports a floor on prices at the $80 level,” said Zahir.

A potential strike among railroad workers in the U.S. may also be providing some support to oil, but it’s not likely a major factor, he said. “We could have supply chain issues, which could be a tailwind for energy.”

Market drivers

Bloomberg reported on Tuesday that the U.S. could begin refilling the Strategic Petroleum Reserve if crude falls to $80 a barrel.

“In addition to refilling storage, which has been heavily tapped into this year, the move would reportedly also be taken to try to support prices at lower levels, so as to try to ensure that we continue to see growth in U.S. oil output. U.S. SPR releases have helped out the market significantly this year, however, these releases are set to come to an end in October,” said Warren Patterson, head of commodities strategy at ING, in a note.

Meanwhile, in its monthly report, the Paris-based IEA cut its forecasts for Chinese oil demand by 400,000 barrels a day in 2022, to 15 million barrels a day, 420,000 barrels a day less than last year. For 2023, the IEA cut its China demand forecasts by 300,000 barrels a day, but still expects demand to rise to 16 million barrels a day as COVID-19 pandemic restrictions are relaxed.

In Europe, soaring natural gas prices are expected to prompt power plants to switch to crude, providing a boost to oil demand of 700,000 barrels day in the six months through March 2023, the IEA said.

Oil prices fell Tuesday after a hotter-than-expected U.S. August consumer-price index reading dashed ideas the Federal Reserve would begin to slow interest-rate increases. Instead, the data boosted expectations for a 75 basis point rise in the fed-funds rate when policy makers next week, with some traders penciling in a 100 basis point move.

The U.S. dollar soared, weighing on commodities priced in the currency. Efforts by the Fed to tame inflation may also lead to a slowdown in energy demand.

Meanwhile, natural-gas prices climbed 10%, posting a fifth consecutive session gain.

Expectations of another smaller-than-normal weekly rise in U.S. natural-gas supplies may be adding support to the market, said Christin Kelley, senior commodity analyst at Schneider Electric, in a daily report. The EIA will report its weekly data on Thursday.

Inventories probably increased by about 71 billion cubic feet last week and if confirmed, would be 11 bcf less than the five-year average for the same week, she said. “That would cause the storage deficit to increase further from its current 11.5%.”