DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session higher. Gains were spurred by larger-than-expected draws from U.S. commercial crude and distillate fuel stocks as five refineries in the Gulf Coast returned to normal operations following forced closures by Hurricane Ida-related power outages. Meanwhile, the Federal Open Market Committee signaled the central bank could soon start slowing the pace of its aggressive bond-buying program in a first step to withdraw pandemic-era stimulus for the U.S. economy.

On the session, NYMEX November West Texas Intermediate surged $1.74 to settle above $72 per barrel (bbl), and Brent crude for November delivery rallied $1.83 to finish the session at $76.19 per bbl. NYMEX October ULSD futures advanced 3.78 cents to $2.2116 gallon, and front-month RBOB futures gained 1.87 cents for a $2.1239-per-gallon settlement.

FOMC signaled at the conclusion of its two-day meeting Wednesday afternoon that it could start tapering $120 billion a month in bond and mortgage-backed securities purchases as early as November should the U.S. economy continue to recover at its current pace.

Fed Chairman Jerome Powell told reporters in a post-meeting news conference that "asset purchases are still useful, but it's time to reduce them," adding that "it will be suitable to finish tapering around the middle of next year."

Still, he clarified that tapering will not necessitate an immediate rate liftoff and left the possibility that the Fed may wait longer if needed.

Updated economic projections released by the Federal Reserve this afternoon show that officials expect to raise rates once, to about 0.5%, by 2022, sooner than they anticipated in May. Nine of the 18 Fed officials at the meeting said they expect to start lifting rates sometime in 2022. All but one official penciled in a rate hike in 2023.

Central bank officials lowered their 2021 economic growth forecast to 5.9% from 7% expected in June, while raising headline inflation expectations to 3.7% this year -- almost a full point higher than their June forecast, when officials projected it would hit 3%. The Fed's preferred inflation measure, the personal consumption expenditures excluding food and energy prices, surged 3.6% in July, the highest level in 30 years. Powell has repeatedly called the spike "transitory," and said he expects consumer prices to fall as pandemic-induced bottlenecks subside.

Wednesday's inventory report from the U.S. Energy Information Administration was mostly supportive for the oil complex, showing commercial crude oil supplies declined for the seventh consecutive week through Sept. 17 amid higher demand from Gulf Coast refiners after the extended disruption caused by Hurricane Ida in late August. U.S. commercial crude oil inventories have now remained in a destocking pattern for nearly two months, drawing national stocks down by more than 25 million bbl since the first week of August. At 413.964 million bbl, U.S. commercial crude oil stocks now stand about 8% below the five-year average.

On the supply side, domestic production recovered 500,000 barrels per day (bpd) from the previous week to 10.6 million bpd as of Sept. 17, still about 900,000 bpd below the pre-Ida output rate.

Distillate stockpiles also fell above consensus last week, down 2.6 million bbl from the previous week to 129.3 million bbl -- about 14% below the five-year average. Demand for distillate fuels, often seen as a proxy for economic activity, surged 629,000 bpd from the previous week to 4.425 million bpd. Diesel demand was up 2.3% relative to the same week in 2019, according to DTN's Refined Fuels Demand data, weakening slightly after being up 2.8% compared to 2019 levels in the prior week.

Bearish parts of the report could be found in gasoline statistics, with stockpiles unexpectedly gaining from the previous week, up 3.5 million bbl versus calls for a 1 million-bbl draw, while demand for the motor transportation fuels remained mostly unchanged at 8.896 million bpd last week.

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