Crudes Move Off 8-Month Low Ahead of ECB Rate Call, Stock Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- With the exception of the ULSD contract, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange edged higher in early trade Thursday. Both benchmarks moved off their lowest levels since January amid signs of accelerated demand destruction across the largest economies in Europe and Asia. An overnight slide in the U.S. Dollar Index ahead of the expected rate hike from the European Central Bank on Thursday morning lent tepid support for the oil complex.

Separately, the American Petroleum Institute late Wednesday afternoon reported U.S. commercial crude oil inventories jumped 3.645 million barrels (bbl) during the week ended Sept. 2, sharply higher than calls for a 300,000 bbl increase. Stocks at the Cushing, Oklahoma, tank farm -- the NYMEX delivery point for West Texas Intermediate futures -- were drawn down 772,000 bbl. The data also showed gasoline stocks fell 836,000 bbl in the reviewed week, below estimates for a draw of 1.4 million bbl, while distillate inventories increased 1.844 million bbl, well above calls for a gain of 200,000 bbl.

The U.S. Energy Information Administration will publish its weekly inventory report at 11 a.m. EDT, delayed a day due to the Labor Day holiday.

In financial markets, the headline event this week will be the European Central Bank's decision to raise interest rates by what could be the largest rake hike ever for the ECB at a time when Europe is struggling with a historic energy crisis. Markets await to see by how much the ECB will raise its benchmark rate, with expectations now leaning towards a 75-basis-point increase to combat inflation.

Inflation in the euro zone hit 9.1% in August and with the continued pressure on energy prices it is expected to reach double-digit levels in the coming months. At the same time, the risk of a recession is looming large over the region's economy as consumers feel the pain and scale back their consumption and companies struggle with high energy prices.

Also on Thursday, Federal Reserve Chairman Jerome Powell is scheduled to give a speech at the monetary event hosted by the Cato Institute in Washington, D.C., in what will be his last public appearance prior to the central bank's rate decision later this month.

Powell will take part in a question-and-answer session moderated by Cato Institute CEO Peter Goettler at 9:10 a.m. EDT as investors look for clues as to the size of the Fed's anticipated rate hike on Sept. 21 and the central bank's policy path between now and the end of the year.

The CME Group's FedWatch is pricing in an 82% chance of a 75-basis-point hike in the federal funds rate when the Federal Open Market Committee meet later this month, which would be the third in succession if realized, as investors look for a so-called "terminal" fed funds rate that is north of 4% before Powell signals a paused in monetary tightening.

On Wednesday, the oil complex came under selling pressure amid signs of accelerated demand destruction in China after government data reported a sharp drop in its crude oil imports last month that declined more than 1 million barrels per day (bpd) from a year earlier. Russia was the leading exporter of crude oil into China with 1.8 million bpd, followed by Saudi Arabia with 1.5 million bpd. Refining throughput in China last month also fell to 13.1 million bpd, down 134,000 bpd from July's throughput rate and 800,000 bpd below the comparable 2021 level.

Ongoing lockdowns in China's major metropolitan cities, weakening manufacturing output and a derailed real estate market could all have contributed to renewed weakness in China's oil consumption. Export data out of Beijing also fell short of analyst expectations, with China reporting a 7.1% monthly increase in August exports compared with an 18% gain in July.

Near 7:30 a.m. EDT, NYMEX October WTI futures advanced $0.60 to $82.52 bbl, while Brent for November delivery gained $0.56 to $88.59 bbl. NYMEX October RBOB futures added 2.12 cents to $2.3289 gallon, and NYMEX October ULSD futures declined 0.88 cent to $3.5771 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges