Oil Futures End at Multi-Week Lows

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchanged settled sharply lower at multi-week lows Wednesday following a mostly bearish supply report from the Energy Information Administration showing an unexpected increase in U.S. commercial crude inventories even as U.S. gasoline demand rose to a record high and stocks on hand fell for a fifth consecutive week to a seven-month low of 231.0 million barrels (bbl).

"Oil prices couldn't get a break today, not only did we get a bigger than expected increase in oil supplies but we heard the Trump administration is going to hold a press conference today regarding increased Chinese tariffs," said Phil Flynn, senior market analyst with Chicago-based Price Futures Group. "Also, if you look at the Fed actions today, there's no big surprise, as they're indicating the economy continues to grow, signaling that rates could increase again in September which puts further downward bias on the price of oil."

The Fed kept the federal funds rate at 2.0% on Wednesday, with a 25 basis point increase expected when the Federal Open Market Committee meets again in September.

EIA said commercial crude inventories rose 3.8 million bbl to 408.7 million bbl during the week ended July 27 versus market expectations for a 3.0 million bbl draw. The drawdown coincided with a 1.373 million barrel-per-day (bpd) plunge in U.S. crude exports to a 1.31 million bpd four-month low while domestic crude production declined 100,000 bpd to 10.9 million bpd.

"We did see a drop in US oil exports, which could be the result of tariffs," said Flynn. "But it's hard right now going into the shoulder months to keep momentum going."

While crude supplies rose, stocks at Cushing, Oklahoma, the delivery hub for NYMEX West Texas Intermediate futures declined for an eleventh week, with stocks reported at 22.4 million bbl, down 1.3 million bbl on the week and the lowest inventory level reported since November 2014. Stocks are at minimum operating levels estimated between 16 and 22 million bbl. Low stocks at Cushing are changing arbitrage opportunities between Cushing and the U.S. Gulf Coast.

NYMEX September WTI futures slumped $1.10 or 1.6% to its lowest settlement on the spot continuous chart since June 21 at $67.66 bbl. ICE October Brent slid $1.82 or 2.5% to a two-week low spot settlement at $72.39 bbl.

NYMEX September RBOB futures settled at a two-week spot low at $2.0451 gallon, down 3.54 cents. September ULSD futures ended the session with a 4.0-cent loss at $2.0974 gallon, the lowest settlement on the spot continuous chart since July 17.

Brian Whary can be reached at brian.whary@dtn.com