Oil Futures Fall on Crude Supply Build

WASHINGTON (DTN) -- New York Mercantile Exchange spot month oil futures and Intercontinental Exchange Brent crude turned sharply lower Wednesday afternoon in response to a second-straight weekly build in U.S. commercial crude inventories. Oil futures also followed equities lower after inverted yield curve of the 10-year Treasury note in the bond markets reignited recession fears.

Following five consecutive session of gains, NYMEX September West Texas Intermediate futures dropped $1.87, or 3.3%, to settle at $55.23 and ICE October Brent fell $1.82 to end the day at $59.48 bbl.

NYMEX September ULSD futures shed 3.36 cents to settle at $1.8437 gallon, giving back nearly half of the prior day run-up while the September RBOB contract shed the bulk of Tuesday's hike, sliding 6.06 cents to $1.6758 gallon settlement.

Less than 24 hours after the oil market rallied on President Donald Trump's announcement of delayed China tariffs, oil futures posted more than 3% losses across the board following another selloff in U.S. equities and bearish crude supply data. Financial markets were rattled Wednesday after yield curve on the 10-year Treasury bond dropped below the two-year Treasury's yield, sending the Dow Jones Industrial more than 800 points lower and S&P 500 down 2.9%. The rare yield inversion is considered by many economists as a reliable sign of a coming recession. Oil futures have been closely tracking equities in the past several weeks amid slowing economic growth and trade-related risks to demand outlook.

Meanwhile, market participants re-evaluate the impact of three-month delay in tariffs on Chinese products, with some analysts warning not to interpret a temporary cease-fire for a significant step toward resolving a year-long trade conflict between the two countries.

President Trump said the reason for delayed tariffs is to benefit Christmas shopping for American consumers. Still, the policy shift in Washington prompted a new round of trade talks between China and the United States, scheduled to begin in two weeks, according to China's Ministry of Commerce.

Wednesday mid-morning the U.S. Energy Information Administration released a mixed bag of supply data for the week ended Aug. 9, detailing an unexpected increase in U.S. oil inventories, while gasoline and distillate stocks were drawn and crude production was unchanged. Government data showed domestic crude stocks increased 1.6 million barrels (bbl) last week, missing calls for 1.57-million draw, yet below the 3.7-million-bbl build reported by American Petroleum Institute late Tuesday. The reported build in inventories came as refinery run rates dropped 1.6%, imports rose nearly 8% while domestic production remained unchanged at 12.3 million barrels per day (bpd) and crude exports jumped 818,000 bpd to 2.604 million bpd in the profiled week.

EIA data also showed draws in petroleum products as of Aug. 9, with gasoline stocks down 1.4 million bbl amid lower output and imports and strong implied demand while distillate inventories decreased 1.9 million bbl to move 3% below the five-year average for this time of year.

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

(BAS)