Oil futures: Crude gives up gains as Gulf storm threat subsides, focus on Fed

21 Sep 2022

Quantum Commodity Intelligence - Crude oil futures Wednesday were in retreat having given up earlier steep gains which came on reports of a potential a major storm heading towards the Gulf of Mexico next week, along with the mobilisation of Russian reservist troops.

Front-month November ICE Brent futures were trading at $90.47/b (1603 GMT), compared to the day's high of $93.50/b and Tuesday's settle of $90.62/b.  

At the same time, Nov22 NYMEX WTI was trading $83.56/b versus Tuesday's settle of $83.94/b.

A low-pressure weather system currently making its way across the Atlantic has been given a 90% chance of intensifying into a storm over the next few days, the US National Hurricane Center said Wednesday.

Although it is too early to say with any certainty that the system will make it into the Gulf of Mexico, the consensus among weather watchers is that the storm has good chance of reaching the super-heated waters of the Gulf of Mexico by next week, although seen more likely hugging the eastern coast.

However, prices retreated from highs with tracking models putting the the likely path of the storm towards the eastern side of the Gulf and away from energy facilities. 

Prices were also bolstered by Russia's declaration of a "partial mobilisation" of its military reserve to replenish lost forces fighting its war in Ukraine.

President Vladimir Putin said Wednesday that an order had been signed to call up those with military training with immediate effect. In a separate speech, defence minister Sergei Shoigu said as many as 300,000 would be eligible for service under the law.

Federal Reserve

Dampening market sentiment the US Federal Reserve is expected to raise interest rates by another 75 basis Wednesday, while other central banks, including the Bank of England, also meet this week.

"Oil prices are lower as energy traders await a wrath of central bank decisions that will trigger mid-cycle slowdowns that will cripple the short-term crude demand outlook," said Ed Moya, senior market analyst at brokerage Oanda.

However, analysts say that further price weakness could lead to a production cut from OPEC+ after the symbolic 100,000 bpd reduction in October.

Although OPEC+ does not publicly give any price target, some market watchers believe that Brent consolidating below the $90/b level could lead to a downwards adjustment in quotas when the group next meets in early October.

JP Morgan, which is believed to be close to Saudi policy, last week suggested OPEC+ may need to cut production by 1 million bpd to "stem the downward momentum in prices and realign physical and paper markets which appear disconnected."

Market resolve was tested by the latest weekly data from the Energy Information Administration, which showed US crude stocks last week increased by 1.142 million barrels, while gasoline was up 1.57 million barrels and distillates 1.23 million barrels.

The American Petroleum Institute reported late Tuesday US commercial crude inventories increased by 1.035 million barrels last week. Gasoline stocks were up 3.225 million barrels, and distillate inventories increased by 1.538 million barrels.