Oil Up on Hurricane Fear; Fed Speakers Blunt Highs

By Barani Krishnan

Investing.com -- Oil bulls: Thank Hurricane Ian.

Oil bears: Thank Messrs. Bullard and Kashkari at the Fed (for not making it any worse for you).

Fears that Hurricane Ian might pulverize oil producing platforms on the Gulf Coast prompted supermajors Chevron (NYSE:CVX) and BP (NYSE:BP) to evacuate their facilities there on Tuesday, boosting  crude prices by more than 2%. 

It was the biggest one-day gain in nearly three weeks for oil bulls tormented through September by the Federal Reserve’s rate hikes, recession worries and a super-strong dollar (not necessarily in that order).

But energy prices still came off their highs of the day, in a redemption of sorts for the bears, after St. Louis Fed President James Bullard cautioned that the United States remained at the risk of a recession from its worst inflation in over 40 years.

“No matter how you look at it, we have a serious inflation problem in the U.S.,” Bullard said in a speech delivered virtually to an economic event in London. “We're missing our inflation target and the credibility of our inflation targeting regime is at risk.” 

Minneapolis Fed President Neel Kashkari, meanwhile, said “there's a lot of tightening in the pipeline” — referring to rates already up by 300 percentage points and likely to rise another 125 before the year-end. “We are moving at an appropriately quick pace,” Kashkari, adding helpfully that “there is a danger of overdoing it.”

Their comments pushed the mercurial dollar back into positive territory after it had been lower for most of Tuesday morning, following the 20-year highs of the past week. A strong dollar is anathema to commodities priced in the currency, including crude, as it raises transaction/acquisition costs for commodity traders using the euro and other currencies.

The stock market, up earlier on Tuesday, also tanked, no thanks to the litany of comments from Bullard, Kashkari and other regional Fed chiefs. Wall Street’s three major stocks indicators — the Dow, the S&P 500 and Nasdaq — are all down about 20% or more for 2022, placing them in bear-market category. 

In oil, New York-traded West Texas Intermediate, which serves as the U.S. crude benchmark, settled at $78.50 a barrel, up $1.79, or 2.3%, on the day, recovering most of the previous day’s losses. Tuesday’s session high for WTI was $79.43.

​​Despite Tuesday’s advance, the U.S. crude benchmark remained almost 40% lower from its March highs of around $130. It was also down more than 12% on the month and 26% off for the July-through-September period, marking its first quarterly decline in two years.

Brent, the London-traded global benchmark for oil, settled at $86.27, up $2.21, or 2.6%, on the day versus the session high of $85.74. 

Notwithstanding Tuesday’s gains, Brent remained some 38% off from its March peak of almost $140. It is also 10% lower on the month, and off 25% for the third quarter. 

“Crude prices are attempting to stabilize alongside most risky assets as the global recession fear-driven selloff is slowly getting fully priced in,” said Ed Moya, analyst at online trading platform OANDA.  “The oil market could see another drop of risk aversion quickly returns, but the current tightness should prevent a drop below the mid-$70s.”

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Sept 26. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile build of 443,000 barrels, versus the 1.14-million barrel growth reported during the week to Sept 19.

On the gasoline inventory front, the consensus is for a build of 709,000 barrels over the 1.569 million-barrel rise in the previous week.

With distillate stockpiles, the expectation is for a modest drop of 69,000 barrels versus the prior week’s gain of 1.231 million.