Tropical Storm Gordon helped oil get ahead of itself, and now oil is being weighed down by a strong dollar, in part inspired by emerging market concerns. Tropical Storm Gordon hit land just short of being a category 1 hurricane and brought heavy rain, but no reports of any major damage to refineries or production platforms. We did see some shut-ins, but it was clear later in the day yesterday that the storm concerns were only a coming attraction for where oil will again eventually trade. Yet, concerns that at first raised concerns about production destruction to demand destruction which happens so many times during these storms. 

Oil also felt pressure after the private forecaster Genscape showed a larger than expected increase in crude supply at the Cushing Oklahoma delivery hub. They reported that crude supply increased to 27,424,310 barrels in storage up from Fri, Aug 24 by 753,863 barrels. The increase is causing some to raise their forecast for this week’s inventory report that was delayed because of the Labor Day weekend. Tonight, we get the American Petroleum Institute (API) report that probably set the stage for a price comeback as it will be a reminder that based on demand, we are still going to be in a tight market as we head towards the end of the year.

The U.S. dollar looks to be the safe haven play as turmoil in emerging markets is causing the greenback to reign supreme and pressure most commodities, oil included. First, it was Turkey, then Argentina and now many emerging markets are trading scared. Bloomberg News reported that the rout in emerging markets showed no sign of letting up, with most currencies weakening and an index of stocks nearing a bear market.

“South Africa’s Rand led the sell-off, falling to the lowest level in more than two years, followed by Mexico’s Peso. The MSCI Emerging Markets Index of shares dropped for the sixth day, set for its steepest slide in three weeks. Worst-hit was Indonesia, where shares tumbled the most in three years amid concerns the depreciating Rupiah will lead to higher corporate borrowing costs.” The emerging market fears are being overplayed and we will find some stability soon. When that happens, we expect the dollar to pull back and support oil and other commodities.