Alaska North Slope crude slid 66 cents Sept. 18 to close at $74.73 per barrel as the initial euphoria of a massive half a percentage point interest rate cut by the U.S. Federal Reserve boosted asset and commodity prices but faded in the latter hours of the trading day.
West Texas Intermediate was down 28 cents to close at $70.91 after spiking, then whipsawing below $70 before rising from the Fed announcement into the close. Brent followed a similar pattern but finished at $73.65 -- off 13 cents for the day.
Lower rates would be expected to boost liquidity and activity in a bullish way for oil prices. But the size of the rate cut spooked some investors that feared it was a sign that the Fed may have waited too long to take action to avoid a recession.
A bullish surprise drawdown in U.S. crude reserves was not enough to carry the day.
U.S. commercial crude oil inventories for the week ended Sept. 13 -- excluding the Strategic Petroleum Reserve -- dropped by 1.6 million barrels from the previous week to 417.5 million barrels, 4% below the five-year average for the time of year, the Energy Information Administration said Sept. 18 in its summary of weekly petroleum data.
Analysts in a Wall Street Journal article had predicted crude inventories would fall by 1 million barrels.
Total motor gasoline inventories inched up by 100,000 barrels on the week, the EIA said. Distillate fuel inventories also gained 100,000 barrels, while the SPR gained 655,000 barrels to 380.6 million barrels.
The Cushing, Okla. Nymex delivery hub saw a drawdown of 2 million barrels and stood at 22.7 million barrels Sept. 13, the Wall Street Journal reported.
"Most people believe that tank bottoms in Cushing, Okla., is somewhere around 20 million barrels and we're getting dangerously close to tank bottoms," Phil Flynn, Price Futures Group senior market analyst said in a report. "If the supplies continue to tighten in Cushing, it could it lead to a potential price spike for WTI futures."
ANS rose 73 cents Sept. 19 to close at $ 75.39, as WTI gained $1.10 to close at $71.19, and Brent gained $1.03 to close at $73.78.
Crude prices jumped after pagers used by Hezbollah operatives in Lebanon detonated in unison in an apparent attack -- sparking supply side concerns that expanding Middle East hostilities could disrupt crude exports from the region.
Lingering crude production disruptions in the Gulf of Mexico -- after Hurricane Francine prompted a shut-in of offshore oil rigs -- took prices higher Sept. 16. ANS jumped $1.19 to close at $74.66; WTI popped $1.44 to close at $70.09, and Brent jumped $1.14 to close at $72.75.
Prices were held in check, however, as weak economic data and moribund August oil consumption levels were reported by China Sept. 15.
On Sept. 13, ANS dipped 23 cents to close at $73.47, as WTI shed 32 cents to close at $68.65, and Brent shed 36 cents to close at $71.61.
Sept. 12 was an up day after Hurricane Francine made landfall in Louisiana on Sept. 11. ANS leapt $1.60 to close at $73.70, WTI leapt $1.66 to close at $68.97, and Brent jumped $1.36 to close at $71.97.
From Wednesday to Wednesday, ANS gained $2.63 from its close of $72.10 Sept. 11, to a close of $74.73 Sept. 18.
On Sept. 18, ANS traded at a $3.82 premium over WTI, and at a $1.08 premium over Brent.
OPEC+ supply side wild card
There is a chance that the Organization of the Oil Exporting Countries and its allied exporting nations could change tack and ramp up production, according to David Oxley, Capital Economics chief climate and commodities economist.
Since 2022, Saudi Arabia has cut its production from 11 million barrels per day to 8.9 million, but in 2014, OPEC boosted production to cut prices and squeeze out higher-cost producers, mainly in U.S. shale oil, the Financial Post said in a Sept. 12 report, adding that the 70% price drop between 2014 and 2016 ranked among the top three declines since the Second World War, according to the World Bank.
Saudi Arabia's oil capacity is 12.5 million barrels per day, leaving 3.6 million barrels spare right now, said Capital.
"If Saudi Arabia were to suddenly turn on the taps and ramp up output to this level, it would almost certainly result in a fall in oil prices as the global oil market flipped into a large surplus," said James Swanston, Capital Economics Middle East and North Africa economist.
The Saudis need prices at $105 per barrel to balance its budget and $85 to balance its current account position, and at current prices it's running a deficit on both, Capital said.
If the Saudis aggressively raise oil output it would boost GDP substantially and oil revenues would be little changed even if the oil price sank to $50, Capital said.
"We estimate that, all else equal, raising production to 12.5 million bpd would increase the size of the Saudi economy by 11.5% compared to 2023 levels," said Swanston.
