DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced in pre-inventory trade Wednesday, lifting U.S. crude benchmark above $72 per barrel (bbl) after industry data from the American Petroleum Institute showed nationwide crude and petroleum products supplies fell sharply last week, while investors await the rate decision from the Federal Open Market Committee amid signs of a slowing economy and resurgent pandemic.

Near 7:30 a.m. ET, NYMEX September West Texas Intermediate futures traded near $71.98 bbl, fading a portion of overnight gains, and the international crude benchmark Brent contract for September delivery advanced $0.22 to $74.70 bbl. NYMEX August RBOB contract added 0.93 cents to $2.3234 gallon and August ULSD futures moved up 0.60 cents to $2.1499 gallon.

Wednesday's move higher is underpinned by the set of bullish inventory data for the week-ended July 23, showing U.S. commercial crude oil inventories fell 4.728 million bbl compared with calls for a draw of 2.2 million bbl, while stocks at the Cushing, Oklahoma hub declined 126,000 bbl. Gasoline stockpiles plunged 6.226 million bbl, more than six times consensus for a 1 million bbl draw. API also reported distillate inventories fell 1.882 million bbl, well above an expected decline of 400,000 bbl. DTN Refined Fuels Demand data shows U.S. gasoline demand surged 2.3% in the reviewed week, underpinned by heavy summer road travel that typically gains momentum around the end of July before again peaking during the Labor Day holiday.

That momentum, however, might be undermined by a new mask guideline from the Centers of Disease Control and Prevention that recommended on Tuesday people should wear masks indoor regardless of their COVID-19 vaccination status. Indoor mask policy is only recommended in areas of substantial or high transmission rates and for children returning to schools in the fall. As the rate of COVID-19 infections with the Delta variant has been increasing rapidly in the United States, CDC reversed its mask policy that was lifted back in May. As per Johns Hopkins University data, the United States is averaging over 57,000 new daily COVID-19 infections. Currently, roughly 50% of the U.S. population is fully vaccinated.

The new mandate could also affect the U.S. Federal Reserve's timing on making any changes to its current accommodative monetary policy, which entails near zero interest rates and billions in monthly bond and mortgage -backed securities purchases. Fed officials might be forced to pause discussions over how and when to gradually scale back those programs given the high degree of uncertainty surrounding the viral spread in the fall and winter seasons.

The central bank will release an updated policy statement 2 p.m. ET followed by a closely watched news conference by Fed chairman Jerome Powell. Increased scrutiny over Fed's quantitative easing policy will undoubtedly emerge later this summer when Powell speaks again at the annual Jackson Hole Economic Policy Symposium in Wyoming, Aug. 26-28.

On Tuesday, International Monetary Fund warned that global inflationary pressures tied to generous stimulus schemes across industrialized nations could prove more than just transitory, forcing central banks to tighten accommodative monetary policy earlier than expected. The consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to the Bureau of Labor Statistics. Excluding the volatile food and energy components, core CPI rose 4.5% from June 2020, the largest advance since November 1991.

"This particular inflation is just unique in history. We don't have another example of the last time we reopened a $20 trillion economy with lots of fiscal and monetary support," Powell recently said. "We are humble about what we understand."

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