DTN Oil

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged lower early Wednesday following this week's rally, pulling back after an industry group reported unexpected weekly builds in commercial crude and gasoline inventories in the United States, while a sudden increase in coronavirus infections in Beijing might prompt officials to lock down the capital, denting travel demand.

In early trading, NYMEX July West Texas Intermediate futures were down $0.65 near $37.70 per barrel (bbl), with ICE August Brent $0.55 lower near $40.35 bbl. NYMEX July RBOB futures fell 1.6 cents to near $1.1910 gallon, with the July ULSD contract reversing off a three-month spot high settlement to trade down 1.4 cents to near $1.17 gallon.

Ahead of Wednesday's 10:30 a.m. ET release of U.S. oil inventory changes during the week-ended June 12 by the Energy Information Administration, the American Petroleum Institute reported an unexpected 3.875 million bbl build in commercial crude stocks although supply was drawn down 3.289 million bbl at the Cushing tank farm in Oklahoma, the delivery location for the WTI contract on NYMEX. Gasoline inventory also increased versus expectations for a small draw, up 4.267 million bbl. Distillate fuel inventory increased 1 million bbl less than expected according to API, with the trade group's survey finding a 919,000 bbl build took place last week. The U.S. refinery run rate is seen to have edged up 0.2% to 73.8% of capacity.

Another 31 COVID-19 infections were identified in Beijing on Tuesday according to Reuters, bringing the six day total to 137, and prompting flight cancellations and school closures, with the new cases the first to materialize since February. The development coincides with a jump in new infections in the United States, with Bing's COVID-19 tracker showing 23,047 new cases on Tuesday for a total 2,177,377 coronavirus cases since the start of the pandemic. Globally, 8,174,009 cases have been identified, with 168,715 new infections reported on Tuesday. Bing's COVID-19 tracker shows U.S. cases peaked on April 24 at 36,138.

Concern over a second wave of COVID-19 cases have briefly paused rallies in equities and prompted selling in oil futures on worry over new lockdowns that would have a deleterious effect on the economy, with the U.S. economy entering recession in February. On Tuesday, health officials pointed to a promising development, with the World Health Organization including the use of dexamethasone in its guidance to medical professionals.

Dexamethasone is a cheap and widely used steroid that has reduced deaths in people seriously ill with COVID-19. News of the finding on Tuesday, with scientist reportedly calling the development a major breakthrough, helped power both oil futures and equities to fresh gains Tuesday, with the Dow Jones Industrial Average gaining for the third straight session, up 526.82 points after last Thursday's 1,861.82 point sell-off.

Investors also cheered discussions reported that the White House was considering more stimulus for later this summer of roughly $1 trillion, which is said to include funding for infrastructure projects. Discussions are said to be in the early phase, and Congress would need to get involved in shaping the emergency legislation.

Federal Reserve Chairman Jerome Powell will deliver his Semiannual Monetary Policy Report to the U.S. House of Representatives Committee on Financial Services at 12 p.m. ET, which follows testimony Tuesday before the U.S. Senate's Committee on Banking, Housing and Urban Affairs. In offering a cautious assessment of the U.S. economy, the Fed chairman said a full recovery would not happen until a vaccine was found.

Internationally, U.S. Secretary of State Mike Pompeo will meet with a Chinese delegation headed by Yang Jiechi, a state councilor and politburo member of the Communist party, at the Hickam Air Force base in Hawaii, with U.S.-China relations having soured over Beijing's handling of the coronavirus in the early stages of the pandemic and China's violation of the "one country, two systems" policy Beijing agreed to in 1997 by imposing mainland law on the city. The meeting takes place after a clash Tuesday between Chinese and Indian forces along their border in the Himalayas that left 20 Indian soldiers dead.

Brian L. Milne can be reached at brian.milne@dtn.com

(c) Copyright 2020 DTN, LLC. All rights reserved.