Oil futures: Prices slump 5% on rate-hike concerns, surge in gasoline stocks

Quantum Commodity Intelligence – Crude oil futures Wednesday were in sharp retreat as broader financial concerns continued to dictate lower price movements, with the OPEC+ panel meeting overshadowed, although a huge build in US gasoline stocks added to the bearish sentiment.

Front-month Dec23 ICE Brent futures were trading at $86.25/b (1945 GMT), compared to Tuesday's settle of $90.92/b and tumbling to around one-month lows as September gains were completely wiped out during the price rout.

At the same time Nov23 NYMEX WTI was trading $84.72/b versus Tuesday's settle of $89.23/b and also the lowest front-month level in four weeks.

"Oil prices are resuming their decline amid concerns over high interest rates for longer hurting the demand outlook. These concerns overshadowed worries about tight supply, which had driven oil prices sharply higher since June," said City Index analyst Fiona Cincotta.

The soaring USD continues to weigh on the commodities sector, as the Dollar Index consolidated at yearly highs around 107 points on consensus towards the Fed maintaining elevated rates to combat doggedly persistent inflation.

There is still another month to go before the Fed rate decision, but several officials are already flagging the likely need for at least one more hike, followed by a slow decline in headline borrowing costs.

"Oil prices took a respite from worrying about the global undersupply of oil and instead began to focus on the parabolic dollar and more predictions of impending economic gloom," said Phil Flynn of The Price Futures Group.

"The dollar went up like a rocket after the US government avoided a shutdown and at least one Fed official, Patrick T. Harker, had to take elevated oil prices into account when it came to raising interest rates," said Flynn.

Cleveland Fed chief Loretta Mester also noted the potential for another rate hike in November if the current state of the economy holds, while Atlanta President Raphael Bostic said it will likely be a long time before rate cuts arrive.

Gasoline

Investors initially shrugged off the latest data from the American Petroleum Institute, which revealed a sharp 4.2-million-barrel drop in crude stocks against analysts' expectations for a much smaller draw, while demand also tumbled. 

However, the crude build was offset in volume terms by a 4-million-barrel build on gasoline inventories, while the API said distillate stocks gained 350,000 barrels.

But prices came under further pressure after the latest EIA data showed a massive 6.5-million build in US gasoline stocks, overshadowing smaller drops in crude and distillates reported by the EIA.

OPEC+

Following Wednesday's meeting of the JMMC - a technical panel under the auspices of OPEC+ - OPEC issued a statement that it would continue to monitor market conditions but stands "ready to take additional measures" at any time.

The no-change recommendation for now was widely expected, but the "additional measures" comment was seen as a potential warning shot that further cuts could be on the cards if the group deems it necessary.

Saudi Arabia reaffirmed earlier Wednesday it will stick with previously announced plans for the additional cut of 1 million bpd until the end of the year, while Russia also confirmed its own 300,000 bpd crude export cut until December.

Crude markets were also weighed down on reports that Russia was set to end the ban on gasoil exports, while the broader energy complex was hit as TTF natural gas prices slumped to four-month lows this week.