Oil Futures Rally on Crude Stock Draw, Fed Call on Rates

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Heading into market-on-close trade Wednesday, nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied across the board, buoyed by surging equity markets after The Federal Open Market Committee pledged to keep interest rates near zero for years to spur growth in the economy battered by the coronavirus pandemic.

On the session, October West Texas Intermediate futures rallied 5% to settle just above $40 barrel (bbl) at $40.16 bbl and the international benchmark Brent contract for November delivery moved up $1.69 for a $42.22 bbl settlement. NYMEX October ULSD futures added 1.70 cents to $1.1163 gallon and the front-month RBOB contract surged more than 5 cents or 5% to settle at $1.1889 gallon.

The Federal Reserve Open Market Committee on Wednesday announced it expects the benchmark interest rate, the target range for federal funds, to remain unchanged at 0% to 0.25% through at least 2023. In its updated Economic Projections, the FOMC also estimates the U.S. gross domestic product to contract at a softer pace, falling 3.7% in 2020 compared with the previous forecast of 6.5% and unemployment of 7.6% at the year's end. The previous forecast called for the unemployment rate to remain just below 10% this year at 9.3%. For 2021 and 2022, the central bank expects economic growth to accelerate to 5% and 3.5% respectively.

The central bank's announcement followed the release of the latest data on U.S. industrial production and retail sales, which rose less than expected last month. Markets are likely to focus on the economic data for September to determine the trajectory of economic recovery into the year's end.

Further boosting the sentiment, Energy Information Administration data show commercial crude oil supplies fell for the seventh time in the last eight weeks during the week ended Sept. 11, down 4.4 million bbl to 496.0 million bbl -- the lowest level since April. Even after the recent declines, however, crude inventories remain about 14% above the 5-year average level. The data also showed refiners and drillers in the U.S. Gulf Coast continued to restore production following Hurricane Laura few weeks ago. U.S. refinery run rates jumped 4% from the previous week to 75.8%. EIA reported domestic producers increased output by 900,000 barrels per day (bpd) to 10.900 million bpd in the week ended Sept. 11.

Demand for refined fuels continued to struggle through the second week of September, EIA data show. Gasoline supplied to the U.S. market, a proxy for demand, barely budged in the week including the Labor Day holiday weekend, typically a busy time for driving demand. Data show gasoline consumption in the most recent week averaged 8.478 million bpd, edging slightly higher off the summer's low of 8.390 million bpd. Demand for distillate fuels plummeted 904,000 bpd to just 2.809 million bpd while stockpiles increased by 3.5 million bbl to 179.3 million bbl, about 22% above the 5-year average.

Total commercial petroleum inventories increased by 4.3 million barrels last week, according to EIA. Total products supplied over the last 4-week period averaged 18.1 million bpd, down by 15.5% from the same period last year.

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

Liubov Georges