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What’s happening: Oil prices settled lower on Wednesday, following the release of data on crude inventories.
What happened: Oil prices surged to a ten-month high earlier in the session on Wednesday, on prospects of tight supply.
However, crude pared gains as the session progressed on profit taking and an unexpected rise in US crude inventories.
Why it matters: Crude oil surged to the highest in ten months in early trading on Wednesday, as traders responded to prospects of output cuts by major oil producers continuing to tighten the oil market.
The OPEC (Organization of the Petroleum Exporting Countries) said it expects worldwide oil demand rising by 2.25 million barrels per day (barrels per day) in 2024 and projected a deficit of 3.3 million bps in the fourth quarter. The US EIA (Energy Information Administration) also sees a deficit of 230,000 barrels in the last quarter of 2023 due to production cuts by Saudi Arabia and Russia.
The EIA said on Wednesday that US crude oil inventories had climbed by 3.954 million barrels during the week ending September 8, versus market expectations of a decline of 1.912 million barrels.
Gasoline stockpiles rose by 5.56 million barrels, the most since July 2022 and higher than market estimates of a 237,000 gain. Distillate stockpiles rose by 3.931 million barrels, compared to market expectations of a 1.303 million increase.
WTI crude oil for October delivery declined by 32 cents to settle at $88.52 per barrel on Wednesday, after hitting a session high of $89.64 per barrel, the strongest price since November 2022.
Brent crude oil for November delivery slipped 18 cents to close at $91.88 per barrel, after surging to the highest level of $92.84 per barrel in November.
In other energy trading, wholesale gasoline for October delivery gained 1 cent to $2.74 a gallon, while October heating oil climbed 11 cents to $3.44 a gallon and October natural gas declined 6 cents to close at $2.68 per 1,000 cubic feet.
What to watch: Traders will watch demand projections by major analysts and agencies. Markets will also continue monitoring economic growth of the biggest oil consumers and data on their stockpiles.
The release of the EIA’s data on natural gas stockpiles, due on Thursday, will also remain in focus. US natural gas stockpiles had increased by 33 billion cubic feet during the week ended September 1st and is expected to rise by 48 billion cubic feet in the latest week.
Context: The EUR/USD forex pair fell on Wednesday, as investors digested the latest economic reports.
Details: Data released on Wednesday showed industrial production in the Eurozone contracting by 1.1% in July, after recording growth for three straight months. The figure was also worse than market expectations of a 0.7% decline.
The ECB projects inflation in the bloc remaining above 3% next year, which increased speculations of the central bank’s tenth rate hike at its meeting on Thursday.
The ECB started its two-day policy meeting on Wednesday, with factors including high inflation and rising recessionary concerns keeping policymakers divided in their rate decision. The ECB has raised its deposit rate to 3.75% in 14 months. Yet, headline inflation in the region has remained above the 5% level.
Strength in the US dollar also weighed on the EUR/USD forex pair on Wednesday following the release of US inflation data. The US consumer price index rose by 0.6% in August, representing the largest increase since June 2022. Annual inflation rate in the US also accelerated for a second month in a row to 3.7%.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to 104.77 on Wednesday. The EUR/USD forex pair fell around 0.2% to 1.0732.
What to watch: Investors await the release of the ECB’s interest rate decision today. Markets widely expect the European Central Bank to hike interest rates to 4.5%.
Other Markets: US trading indices closed mixed on Wednesday, with the S&P 500 and Nasdaq 100 up by 0.12% and 0.38%, respectively, and the Dow Jones index down by 0.20%.
Ukraine said it has launched a missile attack on Crimea. Despite the ongoing geopolitical tensions, the safe-haven US dollar index declined slightly this morning.
Australia’s unemployment rate came in unchanged at 3.7% in August, matching market expectations and lending support to the AUD/USD forex pair.
Argentina’s monthly inflation rate rose for the second consecutive month to 12.4% in August, from 6.3% in July. Despite this, the ARS/USD pair rose slightly in forex trading this morning.
Singapore’s unemployment rate was confirmed at 1.9% in the second quarter, which lent support to the SGD/USD forex pair.
The US government recorded a budget surplus of $89 billion in August, versus a year-ago gap of $219.6 billion, which sent the Nasdaq 100 index higher by 0.4% on Wednesday.
Saudi Arabia’s wholesale prices and inflation rate, India’s wholesale prices, South Africa’s mining production, gold production and SACCI business confidence index, Turkey’s gross foreign exchange reserves, Canada’s wholesale sales, US Retail sales, producer prices, initial jobless claims and business inventories, Brazil’s business confidence, as well as Argentina’s inflation rate.
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