DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session sharply lower, sending the U.S. crude benchmark below $78 barrel (bbl) after inventory data from the U.S. Energy Information Administration showed domestic petroleum supplies unexpectedly increased last week, soothing concerns over a rapidly tightening oil market, while a strengthening U.S. Dollar Index offered additional headwinds to the oil complex.

The U.S. Dollar Index rallied 0.305% against a basket of foreign currencies to finish a volatile session at a 94.272 one-week high after private payroll provider ADP showed U.S. employers added 568,000 new jobs in September -- a marked improvement from the 340,000 job gains for August. Economists mostly expected a more modest gain of 428,000.

Further details of the report show that leisure and hospitality industries -- the hardest hit by the pandemic -- created 226,000 new positions, with the goods-producing sector, including manufacturing, construction, and mining, having added 102,000 new jobs. The ADP data comes ahead of non-farm payroll report from U.S. Labor Department scheduled for release 8:30 a.m. EDT Friday. Although, the two reports can differ substantially, expectations are for Labor Department data to show 475,000 new jobs for last month.

In afternoon trading, U.S. equity indexes clawed back earlier losses to finish in the green, with Dow Jones Industrials adding more than 100 points and the NASDAQ Composite Index ending the session 0.5% higher.

NYMEX November West Texas Intermediate futures fell $1.50 or 2% from a seven-year high settlement on the spot continuous chart to $77.43 bbl, with losses accelerating post-settlement. ICE December Brent contract declined $1.48 to settle a tad above $81 bbl. NYMEX November ULSD futures dropped more than 5 cents to $2.4420 gallon, and front-month RBOB futures retreated 4.97 cents for a $2.3082 gallon settlement.

EIA's inventory report was mostly bearish for the oil complex, showing across-the-board builds occurred in nationwide crude and petroleum product supplies during the week ended Oct. 1. U.S. commercial oil inventories increased for the second consecutive, building by 2.3 million bbl compared with expectations for stocks to have remained unchanged. Unexpected build was realized even as domestic refiners hiked run rates by 1.5% from the previous week to 89.6% -- the highest utilization rate since the final week of August when Hurricane Ida shuttered a large chunk of Louisiana refinery capacity. U.S. refiners processed 329,000 barrels per day (bpd) more crude during the week ended Oct. 1 at a daily rate of 15.744 million bbl.

Gasoline inventories posted an unexpected build of 3.3 million bbl versus calls for stocks to have declined by 200,000 bbl, while demand for motor gasoline remained little changed near 9.427 million bpd. Distillate inventories, meanwhile, fell by 396,000 bbl from the previous week to 129.3 million bbl, and are now about 11% below the five-year average, EIA data shows. Distillate consumption, often seen as proxy for economic activity, jumped 392,000 bpd in the reviewed week to 4.365 million bpd -- directionally in line with a 2% increase reported by DTN Refined Fuels Demand data.

Oil futures came under pressure earlier in the session after Saudi Arabia cut its official selling crude prices to all major markets, signaling softer-than-expected fuel demand.

The Saudi national oil company, Aramco, trimmed its official selling price for the flagship Arab Light crude bound for Asia to $1.30 bbl, down $0.40 from October. Aramco also cut prices for crude bound to Northwest Europe and the United States after keeping them unchanged in October. Extra Light to Northwest Europe was down $1 bbl to a negative $1.80 bbl against Oman/Dubai average. U.S. buyers received a modest discount of $0.10 a bbl from October's $2.40 bbl.

The price moves might give global refiners an incentive to increase crude liftings in November as OPEC+ gradually raises its production targets, which might suggest the physical oil market is not as tight as some analysts have thought.

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