WTI Slumps to Fresh Five-month Lows Under $90.50 on Bearish US Inventories; Gold & Copper Flat

Key Points

• WTI dropped close to five-month lows on Wednesday, weighed by a bearish US inventory report and US/Iran talks.
• OPEC+ agreed to a modest 100K barrel per day output hike for September.
• Copper and gold both moved sideways as traders digested the latest stronger-than-expected US data.

WTI Drops Near Five-month Lows on Bearish US Inventory Report

Front-month futures of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, dropped to close to five-month lows on Wednesday. WTI was last changing hands just under $90.50 per barrel, close to July lows, having dropped around $3.20 on the session. WTI is now convincingly below its 200-Day Moving Average just above $95.00 once again.

Traders cited a bearish official weekly US oil inventory report as the main factor weighing on prices on Wednesday. Headline US crude oil stocks rose by a massive 4.5 million barrels last week despite expectations for a 600,000 barrel draw. Meanwhile, gasoline inventories also rose by 200,000 barrels, higher than expectations for a 1.6 million barrel draw. Analysts said that it is highly unusual for gasoline stocks to rise during the peak US summer driving season.

The report thus contributed to a build-up in fears about the demand outlook in the US, even though other economic data released on Wednesday (ISM Services PMI survey and Factory Order figures) raised optimism that the US economy might not (yet) be in recession.

US/Iran Talks, OPEC+ Output Hike Add to Selling Pressure

Earlier in the week, sources had hinted towards the likelihood that OPEC+ would agree to no change to their output policy in September. As it happened on Wednesday, the group of oil-producing nations agreed to a modest 100,000 production quota lift, potentially adding to the downwards pressure on oil prices.

Analysts also cited news that high-level US and Iranian officials are returning to Vienna to resume stalled indirect discussions on reviving the defunct 2015 nuclear agreement. The US broke with the agreement during the Trump administration and implemented harsh sanctions against Iranian oil exports. Hopes are low that talks will go anywhere, but a removal of sanctions has the prospect of returning well over 1M barrels per day in Iranian exports to global markets.

Copper, Gold Move Sideways

Elsewhere in commodity markets, copper prices were flat just under $3.50, as traders weighed the headwinds of a slightly stronger US dollar and higher US bond yields against the tailwinds of stronger US data that reduced fears about a US recession. Gold prices, meanwhile, consolidated within a mid-$1,750 to low-$1,770s range and were last changing hands just above $1,760.

Metal traders will be closely scrutinizing official US labor market data on Friday for further insight into the strength of the US economy and into the Fed tightening story.