Oil Futures End Mixed on Supply Builds

WASHINGTON (DTN) -- After fading from overnight highs, New York Mercantile Exchange oil futures and Intercontinental Exchange Brent settled shallowly mixed Wednesday afternoon after government data showed bearish builds in U.S. gasoline and distillate fuel stocks occurred during the week ended Aug. 16, while slowing growth in domestic crude production capped losses.

NYMEX West Texas Intermediate October futures fell $0.45 to settle at $55.68 barrel (bbl) with selling accelerating during market-on-close trade. ICE October Brent futures pared gains to end the session at $60.30 bbl after hitting an intraday high of $61.41 bbl. NYMEX September ULSD futures settled 0.3 cents higher at $1.8573 gallon, and the September RBOB contract advanced 1.27 cents to end the session $1.6938 gallon, a one-week high.

Wednesday's uneven session comes as government data reported a 2.7 million bbl draw from U.S. commercial crude inventories, while also detailing a sizable 4 million bbl increase in total U.S. refined products stocks amid lower implied demand for both gasoline and distillate fuels.

The Energy Information Administration (EIA) said U.S. crude supplies fell for the first time in three weeks to 437.8 million bbl, narrowing a surplus against the five-year average to about 2% from week prior. Inventory draw is mostly attributed to a sizable rebound in the U.S. crude export rate, up 818,000 barrels per day (bpd) in the profiled week, and on a higher refinery rate run of 95.9%. EIA figures also showed crude imports plunged 497,000 bpd to 7.2 million bpd after climbing since the last week of July.

Despite the bullish draw last week, U.S. total combined commercial inventories of crude oil and petroleum products remain well above the five-year average, up 5.5%, and in a building pattern since the middle of March. EIA figures showed gasoline inventories increased 312,000 bbl last week, while implied demand for gasoline slid 306,000 bpd in the reviewed week. Distillate fuel inventories jumped a sizable 2.6 million bbl, as implied demand dropped 101,000 bpd to 3.758 million, more than 7% below the same week in 2018.

On the bullish side, domestic crude production remained flat for the third consecutive week at 12.3 million bpd, while still 11.8% above the corresponding week a year ago. During the four-week period ended Aug. 16, U.S. crude production averaged 12.275 million bpd, below a record weekly high of 12.4 million bpd in the last week of May. The slowing growth rate also correlates with a lower U.S. rig count, which indicates trend in future production. Baker Hughes reported last week the U.S. oil rig count at 770 on Aug. 16, down 23 in the third quarter and 99 lower than the corresponding week in 2018.

Despite slowing production rate, the U.S. market is yet to absorb the oversupply of crude and petroleum products. DTN's Director of Market Insights Dominick Chirichella said, "Until inventories move to destocking pattern the oil complex is not likely to enter into sustained price move to the upside."

Complicating that scenario, the Department of Energy on Wednesday reported the sale of 10 million bbl of sour crude oil from the Strategic Petroleum Reserve to be delivered from Oct. 1 through Nov. 30. The SPR held 644.8 million bbl of crude oil as of Aug. 16.

Liubov Georges can be reached at liubov.georges@dtn.com

(CZ)