The Oil Prices of Profiteering
On Thursday (28/9/2023), oil prices dropped by over 1% as investors booked profits following a 10-month high. Oil demand may have been affected by high borrowing costs.
On the London ICE Futures Exchange, November Brent crude futures dropped $1.17, or 1.2%, to $95.38 a barrel. By Friday, November 30th, the contract will have expired. In December, the price of Brent crude oil dropped by 1.3%, to $93.10. The price of a barrel of November WTI crude oil futures on the New York Mercantile Exchange dropped $1.97, or 2.1 percent, to $91.71.
Brent prices for the following month hit $97.69, the highest level since November 2022, due to supply constraints and inventory problems. This is the highest price for WTI since August of 2022.
Oil Prices Slipping Quickly Below $100
Oil was getting set to pull back. Traders “quickly locked in profits just below $100,” according to OANDA senior market analyst Edward Moya.
Concerned that high oil prices might lead to inflation, several investors pushed for continued high interest rates from the US Federal Reserve and other central banks.
Analysts from Gelber & Associates explained that “Crude oil is now the catalyst for the decline” since investors are expecting the Federal Reserve to keep interest rates high for longer than initially anticipated in order to combat inflation.
Potential Economic Decline
High wage increases are being fueled by a resilient job market despite the fact that the US economy grew by 2.1% in the second quarter. We anticipate growth of 4.9% from July through September. A shutdown of the US government on October 1 might cause a significant slowdown in the last quarter of the year.
Officials at the Federal Reserve are concentrating on core inflation data after raising the benchmark interest rate by 525 basis points since March 2022, to a range of 5.25-5.50 percent.
Oil Prices In Market Organization and Inventory Problems
WTI premium for the following month hit a 14-month high on the second trading day. Backwardation meant that spot oil prices were greater than futures prices. In the coming months, there is minimal need for energy corporations to invest in fuel storage.
On Wednesday (27/9/2023), WTI backwardation increased by 48 percent to $2.38 per barrel, the highest level since late July 2022 when government data showed a decline in Cushing, Oklahoma stockpiles. We haven’t seen inventory levels this low since July of 2022.
Barclays analysts noted that “storage at Cushing has shrunk to historically low levels, deepening the WTI curve backwardation.”
Barclays predicted that in the absence of demand shocks, a large adjustment in Cushing storage could necessitate a reduction of the WTI-Brent gap.
Constant Variations in Supply
In order to reduce crude oil stocks in the United States, OPEC+ and its partners, including Saudi Arabia and Russia, cut production by 1.3 million barrels per day through the end of the year.
Russia has not discussed raising supply with OPEC+, and the country’s gasoline export prohibition will continue until the domestic market stabilizes.