DTN Oil

WASHINGTON (DTN) -- After back-and-forth trading for most of the session, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled sharply lower, sending the RBOB contact to its lowest settlement in 4 1/2 weeks after government data reported domestic gasoline inventories unexpectedly rose during the week ended Aug. 13, as demand for the motor transportation fuel stalled, dented, in part, by a surge in COVID-19 infections and signs of slowing economic growth.

The oil complex has seen prices decline in each of the past five sessions, with the September RBOB contract settling 1.79 cents lower at $2.1477 gallon and added to losses in post settlement trade. With only a few weeks left of summer driving demand, gasoline supplied to the U.S. market stalled near 9.3 million barrels per day (bpd) -- about 100,000 bpd below the five-year average. The lack of work commuting, retreating consumer spending and a resurgent pandemic among other factors continue to weigh on domestic gasoline consumption.

Wednesday's inventory report was mixed for the crude complex, showing commercial oil inventories fell by a larger-than-expected 3.2 million barrels (bbl) last week and stocks at Cushing declined by nearly 1 million. Domestic production, meanwhile, jumped by 100,000 bpd for the second consecutive week to a 15-month high 11.4 million bpd.

Last week, Bakers Hughes data reported the number of rigs drilling for oil increased by 10 in the week ended Aug. 13 -- the greatest weekly gain since the first week of April and the highest overall oil rig count since the week ended April 17, 2020. EIA forecast domestic production would remain flat for most of the year, averaging 11.1 million bpd before jumping to 11.8 million bpd by the end of 2022.

Front-month West Texas Intermediate futures settled the session $1.13 lower at $65.46, and moved below $65 in post settlement trade, with the next-month October contact ending at a $0.25 discount to the expiring contact. September WTI futures expire Friday afternoon. ICE October Brent contact lost $0.80 for a $68.23 bbl settlement. NYMEX September ULSD contact declined 1.49 cents to $2.0212 gallon at settlement.

In financial markets, stocks on Wall Street tumbled and the U.S. Dollar Index was flat at 93.144 after minutes from the Federal Open Market Committee's July meeting showed no firm date or process on how the central bank would begin tapering $120 billion in monthly purchases of bonds and mortgage-backed securities. The minutes noted that FOMC participants empathized that the current increase in Delta variant coronavirus infections could restrain growth in the labor market and delay the full reopening of the world's biggest economy. In that spirt, the minutes suggest, the benchmark of 'substantial progress' in both the jobs market and inflation targets had yet to be reached.

"Many participants noted that, when a reduction in the pace of asset purchases became appropriate, it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate," the minutes indicated. "A few participants suggested that the Committee would need to be mindful of the risk that a tapering announcement that was perceived to be premature could bring into question the Committee's commitment to its new monetary policy framework."

Federal Reserve Chairman Jerome Powell acknowledged during a virtual Town Hall on Tuesday the impact COVID is having on the world's biggest economy, saying it has "cast a shadow" on the recovery.

Accelerating coronavirus infections tied to a highly transmissible Delta variant have begun weighing on consumer sentiment, spending and the outlook for the economy. The seven-day moving average for daily infections moved above 100,000 cases in mid-August to 114,190, up 18.4% from the prior week, according to data from the Centers for Disease Control and Prevention.

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