WTI Maintains Momentum as Cushing's 'Tank Bottoms' Approach Following API's Reported Draw

Oil Prices Surge

Today, oil prices ended on a high note, with West Texas Intermediate (WTI) making a strong comeback to challenge the $72 mark. This comes after it dropped to its lowest point in over three years last week due to signs of a slowing Chinese economy.

According to Saxo Bank, the speculation that China might need to implement significant stimulus measures to bolster its economy has prompted hedge funds to start buying. Last week, these funds had the most pessimistic outlook on oil in recorded history.

At the moment, the Federal Reserve's interest rate decision and inventory data are expected to determine the short-term trend.

API Data

The American Petroleum Institute (API) reported the following data:

• Crude: +1.96MM (Expected: -0.5MM)
• Cushing: -1.4MM
• Gasoline: +2.34MM
• Distillates: +2.3MM

Crude inventories saw a build-up for the second consecutive week, and product stocks also increased last week. However, stocks at the critical Cushing Hub have been drawing down for six weeks straight, marking the 10th drawdown in the last 11 weeks.

Implications for WTI

As a result of the ongoing drawdowns at Cushing, 'tank bottoms' are once again on the horizon. Despite this and the reported decline at Cushing, WTI saw only a slight dip after the API data was released.

Oil is also being supported by the expectation of an interest rate cut from the Federal Reserve on Wednesday, which could potentially stimulate a slowing U.S. economy. PVM Oil Associates noted, "For the coming day or two the Fed move will be the dominant driving force ... Oil fundamentals will indisputably take over the role of price-setting, for the immediate future, however, the cost of money in the world's biggest economy will remain in focus."

The market is currently pricing in a 70% probability of a 50 basis point cut.

Bottom Line

As we observe the unfolding events in the oil industry, it's clear that the global economy, interest rates, and inventory data all play significant roles in determining oil prices. With the expected interest rate cut from the Federal Reserve and the ongoing drawdowns at Cushing, the future of WTI remains uncertain. What are your thoughts on these developments? Feel free to share this article with your friends and engage in the discussion. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.