Alaska North Slope crude diverted from an oil rally sparked by government stimulus announced the day prior for the struggling Chinese economy, plunging $1.74 Sept. 25 to close at $74.46. West Texas Intermediate plunged $1.87 to close at $69.69 and Brent plunged $1.71 to close at $73.46.
On Sept. 24, ANS jumped $1.07 to close at $76.20, WTI jumped $1.19 to close at $71.56 and Brent leapt $1.27 to close at $75.17.
Before the Sept. 25 plunge, ANS seemed to be consolidating above $75, after slogging through most of September in the low $70s, even flirting with the $60s -- notching a close of $70.96 on Sept. 10, as Brent dropped to $69.19 and WTI finished at $65.75.
The losses Sept. 25 were puzzling because of a robust drawdown of U.S. crude inventories reported the same day.
U.S. commercial crude oil inventories for the week ending Sept. 20 -- excluding Strategic Petroleum Reserve levels -- dropped by 4.5 million barrels from the previous week to 413.0 million barrels, 5% under the five-year average for the season, the U.S. Energy information Administration said in its Weekly Petroleum Status Report.
Total motor gasoline inventories decreased also -- by 1.5 million barrels for the period, as distillate fuel inventories decreased by 2.2 million barrels, the EIA said.
Analysts said crude prices suffered as initial optimism over China's economic intervention was fading.
The Tuesday rally, spurred by the announcement of Chinese stimulus measures, has fizzled, the Kansas City energy team at StoneX, led by Alex Hodes, wrote in its Wednesday newsletter, MarketWatch reported Sept. 25.
"Expectations are that this round of stimulus won't be sufficient to buoy the sluggish economy," StoneX said. "Still, there's optimism that China may introduce further stimulus in the coming months."
Capital Economics' Julian Evans-Pritchard told MarketWatch Sept. 24 that Chinese households are deleveraging and many private firms are cautious about borrowing, so monetary policy has lost much of its effectiveness in China.
"As such, today's moves are unlikely, on their own, to drive a turnaround in credit growth and economic activity," Evans-Pritchard said. "Achieving that would require more substantial fiscal support than the modest pick-up in government spending that's currently in the pipeline."
Dollar recovery bearish for crude
Changing sentiment may not fully explain the velocity of the plunge in crude prices that hit in the middle of the trading day Sept. 25. The trigger may have been an abrupt midday surge in the value of the U.S. Dollar.
When the dollar rises, crude oil -- as a dollar-denominated asset -- becomes more expensive for buyers that must convert other currencies into dollars to buy crude, causing a hit on oil demand.
The dollar bounced off a 14-month low against the euro Sept. 25 and the yuan fell on growing doubts the impact of stimulus, Reuters reported, adding that the dollar fell Sept. 24 as U.S. consumer confidence in September dropped by the most in three years on labor market fears.
"The narrowing in the labor market differential, which is sort of indicative of demand and supply conditions in the employment market, was a very bad omen for the U.S. economy," said Karl Schamotta, chief market strategist at Corpay in Toronto.
Bryan Rich wrote in the Sept. 24 issue of Pro Perspectives of a technical and fundamental case for a weaker dollar after the Federal Reserve instituted a 50-basis point interest rate cut.
The outlook for lower real interest rates is dollar negative, and "it plays into the long-term dollar cycles, which are in the early stages of a bear cycle," Rich said in the Sept. 25 issue.
Rich said that despite the impetus for dollar weakness, the currency "ripped higher" Sept. 25 at 10 a.m. EST.
The updraft was "driven by the safe-haven feature of the dollar," he said, adding that the catalyst was as follows:
President Volodymyr Zelenskyy "took the stage at the U.N. and said Russia was planning attacks on Ukraine nuclear plants," Rich said.
"Forty-five minutes later, it was reported that the head of the Israeli army said they were preparing for a ground offensive in Lebanon," Rich said.
"And hours later, Putin was on the wires announcing that Russia is expanding 'the category of states and military alliances subject to nuclear deterrence,'" Rich said. "If they get reliable information of an attack, aided by nuclear powers (Western world military alliance), he says they reserve the right to use nuclear weapons."
Supply side
There were developments on the supply side that may have prompted lower prices.
Hurricane Helene changed its path as it neared the U.S. Gulf Coast, threatening Florida while avoiding oil and gas-production facilities in Texas, Louisiana and Mississippi, and the stage has been set for a resumption of crude production in Libya.
Libya's warring factions signed an agreement on a process to appoint a central bank governor, an initial step to resolve the dispute over control of the central bank and oil revenue, Reuters reported Sept. 26.
"A pending resolution to Libya's central bank crisis would restore significant oil supply, while U.S. Gulf production outages are seen as very temporary," energy strategist Clay Seigle told Reuters.
ANS fell 75 cents Sept. 23 to close at $75.14, while WTI plunged $1.55 to close at $70.37 and Brent fell 59 cents to close at $73.90.
On Sept. 20, ANS fell 31 cents to close at $75.89, WTI edged 3 cents lower to close at $71.92 and Brent fell 39 cents to close at $74.49.
ANS leapt $1.47 Sept. 19 to close at $76.20, as WTI jumped $1.04 to close at $71.95 and Brent jumped $1.23 to close at $74.88.
From Wednesday to Wednesday, ANS fell 27 cents from its Sept. 18 close of $74.73 to $74.46 on Sept. 25.
On Sept. 25, ANS traded at a premium of $1.00 over Brent, and at a premium of $4.77 over WTI.
In early Asian trading Sept. 26 as Petroleum News went to press, WTI was down $1.05 to $68.64 and Brent was down $1.13 to $72.39.
