DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended gains into early trade Wednesday, with the U.S. crude benchmark moving above resistance at $39 barrel (bbl) after weekly data from the American Petroleum Institute reported a much larger-than-expected crude draw from U.S. commercial inventories and Hurricane Sally shut-in more than a quarter of the offshore crude oil production in the Gulf of Mexico.

In early trading, October West Texas Intermediate futures rallied more than $1 to $39.42 before backing off the high, with November Brent futures also moving up more than $1, since paring the advance to $41.40 bbl. NYMEX ULSD October futures advanced 1.57 cents to $1.1150 gallon and the front-month RBOB contract added more than 2 cents at $1.1585 gallon.

Oil's rally is underpinned by a 9.517 million bbl crude draw from U.S. commercial petroleum inventories for the week ended Sept. 11 reported by the American Petroleum Institute late Tuesday. Traders will look for the massive drawdown to be confirmed by official data from the U.S. Energy Information Administration on tap at 10:30 a.m. ET, with the large draw reported as Hurricane Sally idles more production in the Gulf waters. The Bureau of Safety and Environmental Enforcement reported 497,072 barrels per day (bpd) of crude production or 27% of the current output in the Gulf of Mexico was shut-in through midday Tuesday.

Hurricane Sally made landfall in Alabama west of Pensacola, Florida, as a category two storm Wednesday morning with heavy rain. Widespread flooding is expected.

Aside from the hurricane, which landed farther east than initially forecasted and away from the bulk of refining capacity, traders await additional macroeconomic signals, with monthly U.S. retail sales data set for release at 8:30 a.m. ET and the Federal Reserve's latest gross domestic product projections for the United States at 2 p.m. ET.

Market consensus is calling for a further slowdown in retail sales in August towards 1% from 1.2% in July and 7.5% in June, surging as government lockdowns in response to the pandemic ended in most cities and states. However, the post-lockdown recovery by the U.S. economy is increasingly showing signs of slowing. That was apparent in U.S. industrial production data released Tuesday by the Fed showing monthly U.S. growth slowed to 0.4% after strong gains in June and July of 6.1% and 3.5%, respectively, with output still 7.5% below its pre-pandemic level in February.

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

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