Crude Build No Match For Rate Cut Optimism As Oil Breaks Losing Streak

Five straight losses for oil are now viewed as oversold: File Image/Pixabay

A poll expressing hope that the U.S. Federal Reserve will cut interest rates soon trumped concern over a crude stock build in that country and resulted in a 1 percent-plus price gain for two key benchmarks on Wednesday.

Brent settled up 89 cents, or 1.2 percent, at $78.41 per barrel, while West Texas Intermediate settled up 82 cents, or 1.1 percent, to $74.07.

A majority of forecasters in a Reuters poll now believe the Fed will cut interest rates in September and again before the end of this year; also, CME's FedWatch tool revealed that trader optimism about a September cut now stands at 69 percent compared to about 50 percent last week.

Meanwhile, investors fortified their bets for a rate cut and caused U.S. stock indexes to climb on Wednesday.

All of this helped break five straight sessions of losses for crude and detracted from the Energy Information Administration's disclosure that U.S. crude stocks jumped by 1.2 million barrels in the week to May 31, compared with estimates for a 2.3 million barrel draw; too, gasoline inventories climbed by 2.1 million barrels.

Fawad Razaqzada, a market analyst at City Index, wrote in a note Wednesday, "It remains to be seen whether this recovery will last, given ongoing concerns over demand and the OPEC+ decision to eventually phase out the voluntary output cuts; however, these concerns might be priced in by now, which should mean that prices could find some much-needed support."

The Organization of the Petroleum Exporting Countriesagreed to cut output by 5.86 million barrels per day (bpd), including 3.66 million bpd of cuts that were due to expire at the end of 2024 (which will be extended for another year), and voluntary cuts by eight members of 2.2 million bpd, expiring at the end of June 2024 (they will be prolonged until this coming September).

For his part, Warren Patterson, head of commodities strategy at ING, told clients in a note that the global oil balance sheet will likely tighten before OPEC resumes increasing production, and he added that "The technicals also suggest that the oil market is entering oversold territory."

Bob Yawger, executive director of energy futures at Mizuho Securities, said WTI could rally as much as $76.15 to $80.62 per barrel in coming days as speculators cover short positions, but he warned that the market would likely reverse course and drill down lower again.

In other oil news on Wednesday, further evidence that Russia is prevailing despite the international sanctions was delivered by Bloomberg, which calculated that the nation's oil-related taxes in May amounted to 632.5 billion rubles ($7.1 billion) with total oil and gas proceeds increasing 39 percent to 793.7 billion rubles.

Russia earned $74.98 per barrel for its Urals last month, up from $58.63 a year ago as the blend's discount to the global Brent benchmark narrowed despite a $60 per barrel price cap imposed by the G-7.