Oil Prices Eye EIA Inventory Data as Biden Administration Considers Extreme Actions

WTI Crude Oil, Inventory Data, EIA, Biden, Crack Spreads – Talking Points

• WTI crude oil prices see a modest bounce after a sharp drop on additional SPR news
• Biden administration said to be considering extreme intervention measures in markets
• Crack spreads are moderating, which should drag on prices should the lull continue

WTI crude oil prices are slightly higher on Wednesday following a sharp 3.97% drop on Tuesday. Brent crude prices are higher as well. A peak in Federal Reserve rate hike bets has prompted a risk-on move in equity markets. Typically, peak hawkishness would bode well for demand-sensitive commodities like crude oil, but persistent and rising recession fears have put a lid on prices.

Moreover, the Biden administration is expected to order a December release of an additional 15 million oil barrels from the Strategic Petroleum Reserve (SPR) on Wednesday. The action is likely a response to OPEC’s production cut, something the White House labeled as a politically motivated stunt. That said, Biden appears to have his political motives as well, with the additional SPR release, as the midterms approach.

Nonetheless, demand is expected to ease over the winter as the impact of higher global rates trickles down through the global economy. Traders will digest updated inventory data from the US Energy Information Administration (EIA) tomorrow. A consensus estimate calls for a 1.38 million barrel increase for the week ending October 14. Distillate numbers, which include diesel fuel, are of growing concern for energy traders as stocks dwindle.

The US has increased exports to Europe. Analysts forecast a 2.17 million barrel drop in distillate stocks, which would be the fourth consecutive weekly drop. Moreover, gasoline stocks are seen falling, with the consensus forecast calling for a 1.11 million barrel draw.

An outsized draw in either could push prices at the pump higher. The Biden administration is reportedly considering a ban on petroleum exports. It is unclear if that would have the desired effect at home, but it would likely hurt European Union members. That would exhaust a considerable amount of political capital, which Biden may prefer to keep holstered, as the potential benefit of lower prices at home would likely pale in contrast to the pain it would cause EU allies.

Crude Oil Crack Spreads Point to a Demand Peak

Taking a look at some key crack spreads in the oil market show that refined product demand may have topped out. The 3:2:1 and 1:1 crack spreads have moderated recently, likely due in part to the announced SPR releases. Should those trends hold, it should pose a headwind to crude oil prices, which those products in the spreads (heating oil and gasoline) are refined from.

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— Written by Thomas Westwater, Analyst for DailyFX.com

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