James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher last week after recovering from early weakness. Nonetheless, the buying was not that strong with the market finishing lower the last two days of the week.

Last week, October WTI crude oil settled at $69.29, up $0.55 or +0.80% and November Brent crude oil finished at $72.61, up $0.91 or +1.25%.

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The two-sided price action suggests investors shifted their focus back to the bullish news – a greater-than-expected draw in crude oil inventories and a weaker U.S. Dollar, while shrugging off potentially bearish news – a sharp rise in gasoline stockpiles, an OPEC+ decision to stick to its policy of gradually increasing output and lingering concerns from oil production shutdowns caused by the impact of Hurricane Ida.

On Friday, another concern drove longs out of the market. This one had to do with the strength of the economy. The week ended with the U.S. government reporting weaker-than-expected payrolls. This news had crude investors questioning the strength of the current recovery and if the country would be able to attain the current demand expectations.

Non-Farm Payrolls Report Suggests Weakening Recovery

The economy added only 235,000 positions, the Labor Department reported Friday. Economists surveyed by Dow Jones had been looking for 720,000 new hires.

The unemployment rate dropped to 5.2% from 5.4%, in line with expectations.

Growth in average hourly earnings continued to come in strong with a 0.6% rise month over month, the employment report showed.


Mixed Supply Fundamentals

According to the U.S. Energy Information Administration (EIA), U.S. crude inventories fell by 7.2 million barrels last week to 425.4 million barrels. Analysts had expected a 3.1 million-barrel drop.  The EIA also reported that gasoline stocks rose by 1.3 million barrels during the week-ending August 27. Meanwhile, OPEC and its allies, agreed to stick to a policy from July of phasing out record output cuts by adding 400,000 barrels per day (bpd) a month to the market.

Weekly Outlook

The big question remains how are traders going to respond to the major problems caused by Hurricane Ida?

At week’s end, oil and gas production in the U.S. Gulf of Mexico remained largely halted in the aftermath of Hurricane Ida, with 1.7 million barrels, or 93%, of daily crude output suspended, according to offshore regulator the Bureau of Safety and Environment Enforcement.

Most traders expect production to come back online in the course of the next week, versus refineries coming back online over the next two weeks.

For a look at all of today’s economic events, check out our economic calendar.
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