In a Nutshell: Oil Tanks on Weaker US Consumer Demand Signposts and Pure Goldilocks with Not a Rabbit Hole in Sight

Despite the recent pushback from Fed officials, markets are still running “risk-on” following last week’s Fed meeting that suggested a slower path of rate increases.


US stocks performed better on Wednesday, with the S&P up 1.6 percent. Tech was the driving force, with NASDAQ up 2.6 percent on strong results and US 10-year rates falling as Brent. For the first time since July 12, crude oil is back below USD100/bbl after falling by 3.5 percent.

Lower oil prices are a delight for stock investors to observe since they support the idea of a slower rate of inflation growth by lowering inflation expectations in addition to lowering US 10-year rates.

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Another Goldilocks ISM, this one from the services sector, encouraged investors and helped US equities rise modestly. In contrast to a sharp decline in the prices paid index, new orders were noticeably higher. In a nutshell, there isn’t a single rabbit hole to be found; it’s pure Goldilocks.


West Texas Intermediate crude oil closed at its lowest price since March 16 after dropping $3.76 to $90.66 a barrel. WTI closed on Wednesday 23 percent below the closing high of $117.15 per barrel set on June 8. The overnight decline occurs after EIA data revealed a build-up in US inventories and OPEC decided to raise crude oil supply in September by 100,000 barrels per day.

OPEC has decided to increase production by 100k b/d in September. Initially, when traders made their calculations in light of a worsening recession and a strong dollar, Brent futures remained close to their highs. Thus, the lowest supply increase in recorded history didn’t seem to matter all that much. Still, oil traders were ready to cut long and re-establish short positions when combined with US demand destruction suggested in the inventory report.

According to the weekly inventory data, last week’s 4.7 million decrease in SPR inventory caused a 223k barrel decrease in crude oil inventory. Commercial oil stockpile actually increased by 4.5 million without SPR. Stocks of final goods were diverse. Inventories of gasoline and jet fuel increased by 1.5 million barrels each and distillate decreased by 2.4 million barrels. And as is typical for this kind of data, after the release of the data, inventory increase caused a significant decline in WTI and RBOB futures prices.

Last week, the refinery utilization rate dropped by a further 1.2 percentage points to 91 percent, its lowest level since May. Traders will assume that a drop in customer demand was what led to the utilization decline. At this time of year, use typically declines only when a large hurricane strikes the Gulf Coast, but there have been no active storms in that region this year.

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