Crude prices and refined products have fallen early this morning as the U.S. dollar index strengthened in reaction to an increase in interest rates. Last week, Fed Chairman Janet Yellen spoke in Jackson Hole, Wyoming about good U.S. employment numbers and price stability, making it seem as if a rate hike could happen earlier than expected, possibly in late September. This bolstered the U.S. dollar index throughout the weekend and therefore negatively impacted crude and refined products. WTI is currently trading down $0.70 to $46.94 and both RBOB and ULSD are down $0.0333 and $0.0165, respectively.
Oil prices are down this morning, adding to this week’s decline, as they look for some firm direction moving forward. Earlier in the week, the American Petroleum Institute and Energy Information Administration released their bearish stats (detailed in this blog earlier), which helped to move the market to potentially its largest weekly decline in a month as the Fed Chairwoman made remarks this morning at the central bank’s annual summit in Jackson Hole, Wyoming. With Chairwoman Yellen hinting at a stronger chance of an interest rate increase this year, the dollar initially declined, but has now moved positive, pushing the oil market lower across both refined product indexes as of this writing.
Let’s recap the EIA report from yesterday morning: There was a reported build in crude inventories of 2.5 million barrels, gasoline built slightly by 36,000 barrels, and diesel built 122,000 barrels. The key driver of the build was the U.S. east coast inventory, which grew by 3.1 million barrels. The market was down over a penny a good portion of the morning with the API report Tuesday evening showing stronger builds than the EIA report, but once the EIA was released the market evened out and eventually finished slightly down on diesel by $0.0055 and up $0.0100 on gas.
The oil market is feeling the downward pressure this morning as the Energy Information Administration’s weekly stats showed builds in crude, gas and distillates somewhat reinforcing data from the American Petroleum Institute late yesterday afternoon. Yesterday saw settles higher across the board as Iran, which has previously been firm in its rhetoric and actions against any production stabilization, may be willing to soften its view. Sources across the oil industry report that next month’s informal OPEC meeting in Algeria could have Iran shifting its strategy. “Iran is reaching its pre-sanction production level soon and after that it can cooperate with the others,” said one source. As always, there are some questioning such talk of curtailing output, as a similar plan in April did not take hold. “There is currently a race to print any freeze headlines but we have not yet seen strong substance behind them,” stated an energy consultant based in Switzerland.
After seven days of consecutive gains, we finally saw some relief in the market yesterday as optimism regarding a possible OPEC production cut to support oil prices begins to dwindle. HO settled down $0.0332 to $1.4864, RBOB finished down $0.0287 to $1.4842, and September WTI crude lost $1.47 to $47.05, while October took over as the front-month contract, falling $1.70 to $47.41. We may have seen even greater losses if it weren't for a weaker U.S. dollar adding some support to prices.