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Oil Under Pressure From Fed, Dollar, And Demand Woes

December U.S. West Texas Intermediate crude oil futures are trading sharply lower on Thursday night after a tentative agreement that would avert a U.S. railroad strike wiped out three days of speculative gains. Sellers were also buoyed by expectations of weaker global demand and continued US dollar strength ahead of next week’s potential one percentage point hike by the US Federal Reserve.
It was news that a railroad strike had been averted on Thursday that sent prices lower, but preparations for the sale were building all week as a number of bearish factors outweighed the potentially bullish news.
Bearish Factor: Speculative buyers head for the exits after railway strike averted
After posting a slight gain at the start of Thursday’s session, crude oil prices began to weaken following an announcement by President Joe Biden that an interim rail labor deal aimed at to avert a nationwide railroad strike that threatened to shut down a major segment of the U.S. transportation system had been achieved.
The deal would improve wages and working conditions for railroad workers and give them “peace of mind about their health care costs,” Biden said in a statement.
Rail carrier and union negotiators met in the office of Labor Secretary Marty Walsh on Wednesday as the parties tried to broker a deal before Friday’s strike deadline.
Bearish Factor: U.S. Crude Inventories Rise for Second Straight Week
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December U.S. West Texas Intermediate crude oil futures are trading sharply lower on Thursday night after a tentative agreement that would avert a U.S. railroad strike wiped out three days of speculative gains. Sellers were also buoyed by expectations of weaker global demand and continued US dollar strength ahead of next week’s potential one percentage point hike by the US Federal Reserve.
It was news that a railroad strike had been averted on Thursday that sent prices lower, but preparations for the sale were building all week as a number of bearish factors outweighed the potentially bullish news.
Bearish Factor: Speculative buyers head for the exits after railway strike averted
After posting a slight gain at the start of Thursday’s session, crude oil prices began to weaken following an announcement by President Joe Biden that an interim rail labor deal aimed at to avert a nationwide railroad strike that threatened to shut down a major segment of the U.S. transportation system had been achieved.
The deal would improve wages and working conditions for railroad workers and give them “peace of mind about their health care costs,” Biden said in a statement.
Rail carrier and union negotiators met in the office of Labor Secretary Marty Walsh on Wednesday as the parties tried to broker a deal before Friday’s strike deadline.
Bearish Factor: U.S. Crude Inventories Rise for Second Straight Week
U.S. crude inventories and distillate inventories rose more than expected over the past week, while fuel demand remained below year-ago levels, the Energy Information Administration said Wednesday. .
Gains were boosted by a release of 8.4 million barrels of the US Strategic Petroleum Reserve (SPR) into commercial stocks; these releases are expected to end in October, and supply should tighten at that time.
Downside factor: increase in distillate stocks, drop in products supplied
Refinery crude oil volumes increased by 93,000 barrels per day, increasing refinery utilization rates by 0.6 percentage points to 91.5%. The increase helped distillate inventories, which include diesel and fuel oil, rise by 4.2 million barrels to 116 million barrels. Distillate inventories have been at lower than normal levels in part due to strong export demand from Europe, and profit margins are high as refiners try to meet consumption in view of the winter use of fuel oil.
Product supplied by refiners, an indicator of demand, was 19.7 million bpd in the past four weeks, down 7% from the same period a year ago. Demand sagged as the economy began to slow in response to persistently high energy costs.
Downside factor: demand weakens
The International Energy Agency (IEA) said on Wednesday that demand growth would come to a halt in the fourth quarter. Additionally, expectations that the US Federal Reserve will continue to tighten policy could push the US dollar past its recent 24-year high. This could weigh on demand as crude oil is a dollar-denominated commodity.
According to the latest reading from the CME’s FedWatch tool, US futures traders forecast an 80% chance of a 75 basis point rate hike on September 21 and a 20% chance of a 100 basis point rate hike basic.
Oilprice
Sep 18, 2022 14:33
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