Oil Settles Sharply Lower

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower again Wednesday following unexpected inventory builds for last week for domestic crude and distillate fuel and a sharp increase in U.S. crude imports reported midmorning by the Energy Information Administration.

EIA said total crude stockpiles surged 2.3 million bbl during the week-ended Aug. 26 to 525.9 million bbl, as refinery crude inputs fell 64,000 bpd to 15.6 million bpd and crude imports jumped 275,000 bpd to a nearly four-year high of 8.92 million bpd. This was the second straight week crude stocks rose and at the current level, total crude oil stocks are 15.5% higher than stock on hand the same week in 2015, EIA data showed.

On products, the data showed distillate supplies up 1.5 million bbl while the market expected inventory to hold steady. Demand for the fuel edged up 48,000 bpd. Gasoline stocks eased 691,000 bbl, EIA said, nearly matching an expected 500,000 bbl draw, even as demand fell 148,000 bpd.

Strength in the U.S. dollar and diminishing speculation that the Organization of Petroleum Exporting Countries will freeze output when they meet next month added to the selloff for oil futures.

NYMEX October West Texas Intermediate crude futures settled down $1.65 at $44.70 bbl, moving off a fresh two-week spot low of $44.51. October Brent crude contract on the IntercontinentalExchange expired $1.33 lower at $47.04 bbl, after posting a fresh two-week low of $46.96. The spot-month contract gained $4.90 in August. The November Brent contract settled down $1.84 at $46.89.

In products trade, NYMEX September ULSD futures contract plunged 6.09cts to $1.4102 gallon at expiration, edging off a two-week low at $1.4059, while the October ULSD contract settled 5.90cts lower at $1.4257. NYMEX September RBOB futures expired 3.61cts lower at $1.4122 gallon, off a two-week low of $1.4023, with the October contract down 4.11cts at $1.3334.

The dollar rallied to a three-week high on expectation the Federal Reserve would raise the federal funds rate as soon as September, based on hawkish comments from Fed Chair Janet Yellen and Vice Chair Stanley Fischer.

A strong labor market has been cited by Fed officials as a factor supporting the prospect of a rate hike, which puts Friday's nonfarm employment report from the Labor Department in sharp focus. The market expects 180,000 new jobs were added to the U.S. economy in August.

ADP payroll services this morning issued their monthly report indicating the private sector added 177,000 jobs in August versus estimates for 175,000.

George Orwel can be reached at george.orwel@dtn.com