DTN Oil

WASHINGTON (DTN) -- Weighed down by a rallying U.S. Dollar Index and a selloff in U.S. equity markets triggered by default warnings from Treasury Secretary Janet Yellen, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange turned lower Tuesday. Traders were positioning ahead of weekly inventory data released Tuesday afternoon by the American Petroleum Institute that is expected to show a second consecutive build in domestic gasoline stockpiles.

In prepared remarks before the U.S. Senate Banking Committee, Yellen warned on Tuesday that Congress must raise the debt ceiling by Oct. 18 to avert the first default in U.S. history.

"The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession," said Yellen.

Late Monday, Senate Republicans blocked a bill to fund the federal government until Dec. 3 and raise the debt ceiling. Yellen cautioned that even flirting with a default could rattle financial markets.

The Dow Jones Industrial dropped more than 600 points at its low point on Tuesday before paring losses somewhat to a little more than 550 points or 1.6% late afternoon. U.S. Dollar Index, meanwhile, rallied 0.43% against a basket of foreign currencies to settle at a 93.780 11-month high, while weighing on the front-month West Texas Intermediate futures contract.

At settlement, NYMEX November WTI futures slipped $0.16 to $75.29 barrel (bbl) after trading as high as $76.67 earlier in the session. ICE November Brent retreated from a 35-month spot high $80.75 bbl to settle a tad above $79 bbl. NYMEX October ULSD futures declined 0.70 cent to $2.2890 gallon from a fresh 35-month spot high of $2.3320 gallon, and front-month RBOB futures fell 2.18 cents or 1% to $2.2019 gallon.

Tuesday afternoon, oil traders awaited the release of weekly inventory data from the API, with U.S. crude oil inventories seen falling by 2.5 million bbl in the week ended Sept. 24. Gasoline stockpiles are expected to rise by 900,000 bbl from the previous week, while distillates supplies are seen falling 1.3 million bbl. Refinery run rates likely rose by 0.8% from the previous week to 88.3% of capacity.

The closely watched survey from the API is scheduled for release 4:30 p.m. EDT.

DTN Refined Fuels demand data show U.S. gasoline consumption increased 1.4% in the week ended Sept. 24, while weakening seasonally after being down 1.3% from 2019 levels in the prior week. Diesel demand, meanwhile, increased 1.5% from the prior week, while up 0.9% relative to the same week in 2019.

Earlier in the session, oil futures were up sharply on the news of deepening fuel shortages in the European Union and China where record runs in gas prices and depleted inventories stocked concerns over global energy crunch. Dutch TTF (Title Transfer Facility) and UK NBP (National Balancing Point) natural gas prices both hit all-time settlement highs on Monday.

The natural gas crisis in Europe is set to intensify as winter heating season approaches, with supplies insufficient to keep up with current demand, let alone build stockpiles for what will be increased demand during the winter months.

"If it's a cold winter in Europe or Asia, we have a big problem," said Ben Lucklock, co-head of the world's second largest oil trading house Trafigura. "If it's cold, and on top, it isn't windy, then we have a much bigger problem. We will face shortages. I struggle to see anything but higher prices."

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