Is the Trend Changing in Crude Oil After Falling Below $85?

Crude Oil was seeing some strong demand in recent week, but since Thursday last week after the US PCE price index report it has been on a freefall and sellers are jumping in. WTI crude Oil prices surged to $95 last week but fell below $85 (to a low of $84.21) yesterday as Oil lost more than $5 top to bottom on the day.

Despite the retreat in the US dollar and another major drawdown in EIA inventories yesterday, which declined by -2.2 million barrels against a -446M projection, the decline in Oil picked up pace. During the JMMC meeting, OPEC+ reaffirmed no changes to its output policy, with Saudi Arabia continuing its 1 million BPD supply reduction through the end of 2023.

EIA Weekly US Oil Inventories

• Oil inventories -2,224K vs -446K expected
• Last week’s inventories were -2,170K
• Gasoline +6,481K vs +161K expected
• Distillates -1,269K vs -333K expected
• Refinery utilization -2.2% vs -0.4% expected

This helps to explain the breakdown in gasoline cracks.

API data late yesterday showed API inventories:

• Crude -4.21M
• Cushing +0.705K
• Gasoline +3.946M
• Distillate +0.349K

On the other hand, Russia will retain its 300,000 BPD export cut till the end of the year. Nonetheless, Oil prices crashed lower to $20s. Crude prices have dropped to September 1 levels and a full $10 below the $95 high hit just 5 days earlier. If oil prices have achieved their peak and can continue to fall below $82.35, this may help to alleviate inflationary fears.

There is no major underlying narrative behind the crash in Oil, while there is speculation about macroeconomic deterioration as interest rates rise. But two factors were known going into the month: October is the worst seasonal month for Oil, and Chinese import limits were significantly lower for October (and China is on holiday this week). So, let’s see how Oil will behave when China comes back.

WTI