DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved shallowly mixed in early trade Wednesday after the American Petroleum Institute reported a larger-than-expected draw from U.S. commercial crude oil supplies that was accompanied by outsized builds in petroleum products stockpiles, while investors await today's Federal Reserve rate decision with added caution in the wake of mixed economic and inflation data.

API reported commercial crude oil supplies dropped 8.537 million barrels (bbl) last week, more than twice calls for a draw of 2.9 million bbl. If confirmed by the official data from the U.S. Energy Information Administration, the draw would press nationwide crude stockpiles well below the five-year average. Gasoline stockpiles rose 2.852 million bbl compared to estimates for a decline of 800,000 bbl while distillate inventories increased 1.956 million bbl, well above calls for a gain of 100,000 bbl.

EIA will release its weekly inventory data 10:30 a.m. ET.

In financial markets, equities slipped lower and the U.S. Dollar Index came under mild pressure ahead of Wednesday's Federal Open Market Committee meeting, with consensus calling for no change in the Fed's base lending rate range which currently sits at 0% to 0.25%.

The FOMC will unveil the results of its two-day policy meeting at 2 p.m. ET, with Chairman Jerome Powell holding a press conference 30 minutes later through a virtual feed from Washington. Investors will pay close attention to Powell's comments for clues on when the central bank will begin tapering $120 billion in monthly asset purchases of Treasuries and mortgage-backed securities.

The central bank began its massive bond-purchasing program at the outset of the pandemic in March 2020, ensuring the flow of credit and the ability of the market to function as businesses were ordered to lock down. Officials have pledged to maintain easy monetary policy "until substantial further progress has been made towards the Committee's maximum employment and price stability goals." Powell has reiterated the central bank's willingness to allow inflation to climb above its 2% target in order to accommodate increased employment.

Recent inflation data, however, showed consumer prices rose at the fastest rate in over a decade, with the consumer price index jumping 5% in May from a year earlier, following a 4.2% increase in the 12 months ended in April. Powell and U.S. Treasury Secretary Janet Yellen insist the current inflation dynamics are transitory as the economy is rebounding from the pandemic much faster than expected that has been met with shortages of key materials that have wreaked havoc on global supply chains.

Despite ongoing shortages of the key materials, U.S. industrial production and factory output climbed above expectations in May with an 0.8% reading, suggesting U.S. industry is continues to rebound from the coronavirus recession along with the rest of the U.S. economy. U.S. retail sales, however, fell a more-than-expected 1.3% in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in other activities that had been restricted by the pandemic. Although last month's decline was more than expected, the trend in retail sales remains strong. Sales in April were revised sharply up and are well above their pre-pandemic level, keeping intact expectations of double-digit growth in both consumer spending and the economy this quarter.

Oil complex was also lent support from a "significant tropical disturbance" in the Bay of Campeche with a heading for the Louisiana coastline this weekend that could disrupt offshore oil production in the Gulf of Mexico. DTN Weather forecasts the disturbance to strengthen into a tropical storm on Friday, generating rough seas that could impact offshore drilling activity and loadings at ports in Texas and Louisiana, with heavy rains locally. As forecast, the storm is bullish for crude while bearish for gasoline, with heavy rains potentially limiting driving demand.

In early trading, NYMEX July RBOB futures traded 0.8 cents lower near $2.1625 gallon, extending losses into a fourth consecutive session amid growing concerns over the strength of summer driving demand. July ULSD futures declined 1cts to $2.1023 gallon. NYMEX West Texas Intermediate July contract edged $0.20 higher to $72.30, trading near a fresh 32-month spot high at $72.83 bbl. International crude benchmark Brent August contract gained $0.35 to near $74.35 bbl.

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