WASHINGTON (DTN) -- After trading in narrow ranges for most of the session, nearby delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled mixed on Tuesday, with the West Texas Intermediate October contract expiring below $40 per barrel (bbl). Traders are looking toward an expected bearish U.S. inventory report for the week ended Sept. 18 and a sudden spike in coronavirus cases across European economies that have triggered some tightening of quarantine measures and new restrictions on mobility.
Tuesday afternoon, traders positioned ahead of the weekly release of U.S. inventory data from the American Petroleum Institute due out 4:30 p.m. EDT to be followed by official statistics from the U.S. Energy Information Administration on Wednesday. Market watchers mostly expect a bearish report, with combined crude and refined product inventories seen to have increased last week. Crude oil stocks are estimated to have declined by 1 million bbl, while gasoline stocks likely increased 500,000 bbl and distillate supplies by 1 million bbl on the week.
Bloated distillate inventories have been a growing challenge for domestic refiners that restrained crude throughputs to 13.5 million barrels per day (bpd) during the week ended Sept. 11, 3 million bpd or 18% below the five-year average in an effort to minimize production of distillate fuels. U.S. distillate supplies remain far above the five-year average at 179 million bbl -- the highest level since 1982. With global air travel unlikely to recover anytime soon, high distillate inventory will remain a bearish factor for the U.S. and global oil markets.
Expanded mobility restrictions in Europe is the latest bearish news for distillates, where transportation fuel consumption is heavier for diesel, while occurring during the fall months -- a time when the coronavirus pandemic is expected to worsen.
In Northwest Europe, British Prime Minister Boris Johnson announced Tuesday new quarantine measures for the first time since March to halt the recent spike in coronavirus cases. Although new measures stop short of the lockdown, UK health officials note that, should the trajectory of the virus worsen, they could be tightened.
High-frequency traffic data from Apple Inc. already shows the request for driving directions fell sharply in some of Europe's major economies, including the United Kingdom. Consensus for Eurozone's Purchasing Manufacturing Index for September due for release overnight calls for a slight dip in economic activity from the prior month.
Domestically, Federal Reserve Chairman Jerome Powell Tuesday reassured elected officials the economy remains resilient even with a broader spread of the virus and the expiration of CARES Act provisions. Earlier this month, Federal Open Market Committee upgraded their 2020 economic projections, forecasting gross domestic production to contract at a softer pace of 3.7% compared with a 6.5% contraction expected in June, with the U.S. unemployment rate projected at 7.6% by year's end. Powell noted, however, most FOMC participants assumed some additional fiscal action in their forecasts.
The U.S. dollar index marched above 94 in afternoon trade Tuesday to a 94.12 nine-week high, as risk aversion across global markets prompted a flight to the safety of the currency.
NYMEX October WTI expired 29 cents higher at $39.60 per bbl, with November WTI futures settling below $40 per bbl at $39.80 bbl. The international crude benchmark Brent contract with November delivery gained 28 cents to settle at $41.72 per bbl, with the December contract holding a $0.47 premium to November. NYMEX October ULSD futures declined 1.12 cents to $1.0961 gallon, and front-month RBOB futures dropped 1.28 cents to $1.1643 per gallon.
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