WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange ended down, adding to early losses in post-inventory trade Wednesday, with prompt-month West Texas Intermediate futures dropping back to a 3-week low settlement as the U.S. dollar rebounded from a multiyear low and domestic gasoline demand tumbled in the final week of August.
Oil traders shrugged at a massive drawdown in U.S. crude oil stockpiles and drop in production, chalking it up as a one-time event following Hurricane Laura. The storm only briefly halted output in the Gulf of Mexico and caused no major damages to refining capacity in the region. As of 12:30 p.m. EDT, operator reports estimate approximately 19.9% or 368,223 barrels per day (bpd) of Gulf of Mexico crude production was still shut-in compared with almost 80% on Aug. 26.
As a result of Gulf of Mexico shut-ins, EIA estimated domestic production slumped 1.1 million bpd from the previous week to 9.7 million bpd, while traders anticipate next week's report to show a bounce back in output.
Data indicated U.S. commercial crude inventories fell 9.4 million barrels (bbl} from the previous week to 498.4 million bbl, a far steeper dive than the 3.1 million bbl drop expected. Gasoline stockpiles also fell by a larger-than-estimated 4.3 million bbl and distillates inventories declined 1.7 million bbl on the week.
The steep drop in petroleum supplies, however, failed to push prices higher and instead oil got hit with a wave of heavy selling. At settlement, WTI October futures shaved a $1.25 of value off to settle at $41.51 bbl and international crude benchmark Brent settled $1.15 lower at $44.43 bbl. NYMEX RBOB October futures tumbled 2.27 cents or 1.9% to $1.2020 gallon and front-month NYMEX ULSD futures declined 4.23 cents to $1.1885 gallon.
Further weighing on the complex, the U.S. Dollar Index rallied 0.4% in afternoon trade Wednesday as investors increased their bets for a stronger U.S. economic rebound. The oil complex received steady support over the past several weeks from the greenback that weakened to multi-year lows. When the dollar strengthens, foreign purchases of crude oil are often reduced.
Internationally, the Organization of the Petroleum Exporting Countries raised output for the second consecutive month, up 950,000 bpd to 24.27 million bpd in August, according to a survey published by Reuters. The biggest rise in production came from Saudi Arabia, which pumped 9 million bpd last month, up 600,000 bpd from July. The second-biggest increase came from the United Arab Emirates, followed by smaller increases from Angola and Algeria.
Iraq and Nigeria, however, reduced their output from the previous month, lifting overall compliance for the 13-member cartel to 99% in August. Iraq, Nigeria and Brunei among others have submitted their plans for "catch-up" on output cuts to OPEC's Secretariat on Friday, according to Energy Intelligence report.
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