WTI Holds Gains As Cushing ‘Tank Bottoms’ Loom After API Reported Draw

Oil prices closed higher today, with WTI rallying strongly up to test $72 (after falling to the lowest in more than three years last week as the Chinese economy showed more signs of slowing).

“Speculation that China needs to go big on stimulus to support the economy have helped trigger buying from hedge funds, who last week held the most bearish view on oil in recorded history,” Saxo Bank noted.

For now, The Fed’s rate decision and inventory data will define the short-term trend.

API

Crude +1.96MM (Exp. -0.5MM)

Cushing -1.4MM

Gasoline +2.34MM

Distillates +2.3MM

Crude inventories built for a second week in a row (and product stocks also increased) last week. However, stocks at the crucial Cushing Hub drew down for the sixth week in a row (10th of the last 11 weeks)…

Source: Bloomberg

The ongoing drawdowns at Cushing mean ‘tank bottoms’ are in sight once again…

Source: Bloomberg

WTI dipped very modestly after the API data (despite the Cushing decline)…

Source: Bloomberg

Of course, expectations of an interest-rate cut from the Fed coming Wednesday (potentially stimulating a slowing U.S. economy) is also supporting oil.

“For the coming day or two the Fed move will be the dominant driving force … Oil fundamentals will indisputably take over the role of price-setting, for the immediate future, however, the cost of money in the world’s biggest economy will remain in focus,” PVM Oil Associates noted.

The market is pricing in expectations of a 50bps cut with a 70% probability.