WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent crude posted modest gains in the last session of July, as the Federal Reserve announced the first rate cut in a decade and U.S. crude inventories declined for a seventh consecutive week, according to the Energy Information Administration.
After choppy trading, NYMEX September West Texas Intermediate futures inched $0.53 higher to a $58.58 barrel (bbl) settlement, while the ICE September contract expired $0.45 up at $65.17 bbl. ICE Brent October contract settled at $0.12 discount to the expiring contract on Wednesday. Both the WTI and Brent benchmarks posted only fractional spot changes in July.
NYMEX August RBOB futures expired at $1.9020 gallon, shedding 2.1% on the month, ending the session at 3.92 cents premium to the September contract. Gaining 0.5% in July, NYMEX August ULSD futures expired 1.1 cents higher on Wednesday at $1.9550 gallon, rolling off the board at a 1.57-cent discount to the September contract.
The Federal Open Market Committee lowered the target range for its borrowing rate 25 basis points to 2% to 2.25% this afternoon, reversing a highly controversial rate hike in December 2018. Fed Chairman Jerome Powell also indicated a "pause" in further cuts this fall, citing strength in the U.S. labor market. The Labor Department is expected to report 166,000 new jobs were added by the U.S. economy in July, which follows a robust 224,000 nonfarm jobs in the previous month.
Investors are split on whether the Fed will pause in making further cuts, with some expecting additional rate cuts later this year.
Wednesday's 0.25% cut in the federal funds rate was priced in by the markets, however equities nosedived after Powell remarked that the cut was simply a "midcycle adjustment," and that the committee did not see the economic weakness that would prompt a longer rate-cutting policy.
The U.S. dollar spiked to a 26-month high at 98.445 on Powell's comments, and some market analysts believe the greenback may strengthen further.
The expected rate cut comes as U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer concluded a two-day meeting with China's delegation in Shanghai without reaching a deal on bilateral tariffs. According to Reuters, trade talks are set to resume in Washington in early September, indicating that trade tensions between the two economic superpowers will continue to weigh on the global growth outlook.
The U.S.-China tariff war has slowed the Chinese economy, which grew at its slowest pace in the second quarter since 1992. The latest data from China detailed a modest improvement in its manufacturing purchasing managers' index in July to 49.7 from 49.4 in June, but remained in negative territory for the fifth consecutive month in 2019. Readings below 50 indicate contraction.
Oil futures posted modest gains earlier in the session after government data reported a seventh consecutive decline in U.S. commercial crude inventories last week, while also detailing a larger-than-expected drop in gasoline and distillate stocks. Crude gains were likely offset by a sharp rebound in U.S. crude production, which reversed up a massive 900,000 barrels per day (bpd) last week to 12.2 million bpd, reminding traders of continued strength of domestic production and risk of an oversupplied market. Still, after seven straight weeks of declining U.S. crude supply, inventory reached a 38-week low as of July 26 and is currently on par with the five-year average.
EIA said this morning U.S. crude inventories fell a much-larger-than-expected 8.5 million bbl last week, topping estimates from the American Petroleum Institute by 2.476 million bbl and nearly three times larger than market calls for 3.1 million bbl for the profiled week. In refined products, EIA said gasoline inventories fell for the second straight week, down 1.8 million bbl as of July 26 to 230.7 million bbl, nearly 2% above the five-year average for this time of the year. Data showed implied gasoline demand dipped 114,000 bpd in the week profiled to 9.559 million bpd, down 1.2% versus corresponding week in 2018. Distillate fuel inventories reversed 894,000 bbl lower after five consecutive weeks of gains, bringing distillate stocks to 135.98 million bbl, a 9.4% year-on-year surplus although about 3% below the five-year average.
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