Cramer's Charitable Trust: This Sudden Oil Rally May Be Short-Lived

 | Sep 16, 2015 | 2:15 PM EDT
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The following commentary was originally sent to Action Alerts PLUS subscribers on Sept. 15, 2015, at 1:49 p.m. ET.

West Texas Intermediate crude was trading nearly 6% higher Wednesday afternoon amid news of an unexpected drawdown in stockpiles. Earlier today, the Energy Information Administration (EIA) released its weekly crude inventory report, which showed crude oil supplies decreased by 2.1 million barrels for the week ended Sept. 11, compared to expectations for a 1.8-million-barrel build. Crude inventories are now down to 455.9 million barrels, but remain at extreme levels not seen for this time in the last 80 years. Oil stored at Cushing, Okla., centers (the delivery point for U.S. benchmark oil futures) also fell by 1.9 million barrels. The news released by the EIA comes the morning after the American Petroleum Institute (API) released its weekly inventory report showing stockpiles had fallen 3.1 million barrels for the past week.

These surprisingly bullish reports, which show the first inventory drawdown in three weeks, have sent oil futures rising above $47 per barrel over the past couple of hours as traders finally see some indication of the production decreases they have been promised for several months. While the EIA report was not downright positive (it showed a larger-than-expected addition to gasoline and diesel stockpiles), it seems many traders have been grinding their teeth awaiting a decline in crude production so that they are content in focusing on just the crude stockpiles numbers at the expense of everything else.

In addition, sentiment around the market seems to be that expectations are growing that the Fed may not increase interest rates following its policy meeting tomorrow, which could levy some (not all, by any means) of the downward pressure on oil prices as it is a dollar-denominated commodity.

That being said, although these reports add to our cautious optimism on the oil trade (in addition to reports a couple of weeks ago that OPEC had renewed its openness for dialogues with other producers and EIA's new data on domestic oil production based on improved methodology), we note that there could certainly be more rocky times ahead.

There is too much uncertainty surrounding the Fed's impending decision to know fully how the market will react when they release their statement on interest rates tomorrow. In addition, the fundamental problems overwhelming the oil market -- namely the global supply and production gluts, which could be further exacerbated by Iranian oil exports in the near future -- still exist despite a brief sigh of relief seen in the trade today.

In all, while we welcome the renewed positivity and think we could be headed in the right direction in the longer term, we will continue to monitor the market as we suspect this could be a short-lived rally, at least for now.

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