Crude Ends Week in the Red; $90 Oil “Starts Acting Like New $100”

By Barani Krishnan

Investing.com -- It tried rallying on talk of a smaller U.S. rate hike for September. And when oil trades on Fed talk, which is dollar territory, and not OPEC bluster — which is fundamentally right for crude — you know something has to give.

And it did.

West Texas Intermediate, the benchmark for U.S. crude, went up all the way up to $92 on Friday before giving back most of it to settle at $90.88, up 27 cents, or 0.3% on the day. The session high for WTI was $92.08, which if maintained, would have given WTI a gain of 1.7% on the day.

The modest bump at the close also left the U.S. benchmark down 1.3% on the week.

Brent, the London-traded global benchmark for crude, settled up 13 cents, or 0.1%, at $96.72. Brent’s session high was $97.84, which if held, would have given the global crude benchmark a gain of 1.3% on the day.

For the week, Brent was down 1.5%.

Crude rallied earlier in the day on suggestions that the Fed might ease up on its Sept. 21 rate hike and that the longs between now and then would be opportunistic for risk markets.

But the misfortune for oil longs was that the Dollar Index, which pits the U.S. currency against theeuro and five other majors, also rose, far more than crude, hitting a five-week high of 108.14. The dollar rose on speculation that the Fed would not ease up on super-sized rate hikes until it gets a better handle on inflation. That speculation has gained ground since Wednesday's publication of the Fed meeting minutes for July, which did not make a clear indication on what the upcoming rate hike for Sept. 21 would be.

“You know that when the oil market starts talking about the benefits of Fed moves versus the maneuvers of OPEC or EIA data, then it’s time to wonder how much of the fundamentals are holding up the market,” said John Kilduff, partner at New York energy hedge fund Again Capital. “For what it’s worth, $90 WTI is acting like the new $100.” 

In Thursday’s session, both WTI and Brent rose almost 4% after OPEC secretary-general Haitham Al Ghais hinted at a production cut by the cartel in September amid the prospect that Iran’s 2015 nuclear deal could be revived in a matter of weeks.

Earlier in the week, WTI fell to $85.73, its lowest since Jan. 26, while Brent sank to  $91.72, its lowest since Feb. 16, on speculation of a new lease of life for the Iran nuclear deal — which could bring an additional one million barrels per day or more to the market. Oil was also weighed down since last week by data showing oil refining volumes by top importer China having hit pandemic-era lows.

Al Ghais’ hint of an OPEC production, however, boosted risk-taking in oil again.

With 13 original members led by Saudi Arabia — before its alliance with Russia and nine other oil producers — the extended OPEC+ group has been raising production over the past year since slashing them from May 2020 in the aftermath of the coronavirus breakout that decimated demand for oil.

While this year’s production hikes were initially insulated by Russia’s invasion of Ukraine which sent crude to 14-year highs of between $130 and $140 a barrel by early March, OPEC+ has become more vulnerable of late as a market downturn since May has persistently driven prices lower. 

Thursday’s spike in oil was also supported by supportive inventory data from the EIA, or Energy Information Administration.

EIA inventory data for the week ended Aug. 12 showed U.S. crude stockpiles tumbling by some seven million barrels due to record high exports and a smaller-than-usual release from the nation’s emergency oil reserve.

Exports of US crude hit an all-time high of five million barrels last week. The Biden administration, meanwhile, authorized the release of just under 3.5 million barrels from the Strategic Petroleum Reserve compared with its typical weekly release of five-to-six million barrels aimed at bridging supply shortfalls in the market.