RE: Argus news...28 Sep 2023 17:17
Seeking Alpha.
The latest data out of Cushing, Oklahoma, the nation's major oil storage hub, has commodity traders on edge again, with a steep drop in inventories compounding worries about tight global supply. Last night, WTI crude futures (CL1:COM) even touched $95/bbl at 9 PM ET, continuing a big rally that began at the beginning of the summer. In fact, crude has soared about 40% over the past three months, with West Texas Intermediate jumping another 3.6% on Wednesday, marking its biggest gain since early May.
Inflation watch: Further drawdowns at Cushing would spell more trouble for an already tight oil market due to the deepening supply cuts from Saudi Arabia and Russia. Inventory levels in Cushing have been cut in half since June, and now stand at just below 23M barrels, or a level that's close to the operational minimum. If tank storage falls below 20M barrels, the oil can become sludgy and difficult to remove, potentially adding to upward pressure on prices and renewing fears of inflation.
"The U.S. has, in essence, bailed out the rest of the world from an oil supply shortage, but that is about to come to an end," writes Investing Group Leader HFI Research. "U.S. crude storage will not build during refinery maintenance season [in October]... and one of the bear factors was demand, but demand is holding up well." Oil stocks have also reflected similar sentiment since the summer, with big gains seen for companies like Chevron (CVX), Conoco (COP), EOG Resources (EOG), Exxon Mobil (XOM), Hess Corporation (HES), Occidental Petroleum (OXY), Pioneer Natural Resources (PXD), Schlumberger (SLB) and Valero (VLO).
What else to watch: Bond yields are climbing along with oil prices, with the 10-year Treasury yield topping 4.6% on Wednesday. If things keep going, it can rekindle some fears and lead to the third consecutive year of losses for the bond market - a development that last happened in the early 1970s. That will have broad implications for other asset classes and currencies, with higher bond yields making the greenback more attractive. The next catalyst investors are also eyeing is tomorrow's key inflation data, with a reading on the core Personal Consumption Expenditures Price Index.
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