DTN Oil

WASHINGTON (DTN) -- Following a two-session rally, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed early Wednesday after preliminary data from the American Petroleum Institute showed smaller-than-expected draws from U.S. commercial crude and gasoline inventories while shut-in oil and gas production in the Gulf of Mexico oilfield operated by Mexico's state-owned PEMEX is scheduled to fully restart in the next 36 hours, with the company planning to bring 400,000 barrels per day (bpd) in lost output back into the global oil market.

Mexican state oil company PEMEX expects to resume all crude production lost to the deadly fire earlier this week by Aug. 30, according to a company statement released late Tuesday. The accident in the offshore Gulf of Mexico knocked 125 oil wells offline, reducing the company's output by 441,000 bpd, about 25% of Mexico's total oil production.

"We can report that 35 wells that produce 71,000 bpd have been recovered and we will reestablish 110,000 additional bpd by opening another 29 wells in the next 36 hours," said PEMEX's Chief Executive Octavio Romero.

The unplanned production outage affected Mexico's largest offshore oil complex -- Ku-Maloob-Zaap, that requires uninterrupted supplies of natural gas and power to pump oil out of the ground. PEMEX officials said they hope to resume power and gas supply to the facility and connected wells by Wednesday followed by full restoration of oil output.

Separately, API reported late Tuesday U.S. commercial crude oil inventories fell 1.622 million barrels (bbl) in the week ended Aug. 20 versus an expected 2.4 million bbl drop. Data show stocks at the Cushing, Oklahoma, hub were drawn down 485,000 bbl. Gasoline stockpiles declined 985,000 bbl in the week ended Aug. 20 compared with calls for a draw of 1.4 million bbl. API data also detailed a modest 245,000 bbl draw from distillate inventories compared with estimates for stocks to remain unchanged.

DTN Refined Fuel Demand data shows gasoline use in the United States increased 0.1% during the reviewed week, while still down 2.5% compared to the same week in 2019. Diesel demand was up 1% relative to the same week in 2019 last week, slowing from a 2% increase compared to 2019 in the prior week.

In outside markets, stocks on Wall Street edged higher and the dollar index strengthened against a basket of foreign currencies ahead of this morning's release of Durable Goods Orders, on tap for 8:30 a.m. EDT. Economists expect last month's core capital goods orders declined 0.2% after an 0.8% gain in June, matching the downtrend in retail sales and consumer spending. Last month, retail sales dropped by a larger-than-expected 1.1% as rising COVID fears weighed on consumer sentiment.

Bolstering sentiment this week, the Federal Drug Administration granted full approval for the Pfizer and BioNTech COVID-19 vaccine, fueling expectations that more formal vaccine mandates from corporate America would increase vaccination rates. Centers for Disease Control and Prevention showed 73.2% of Americans received at least one dose of the coronavirus vaccine. The current seven-day moving average of daily new cases, however, remains elevated at 135,056 as of Aug. 21 -- an increase of 14% compared with the previous seven-day moving average.

The trajectory of the viral spread will be the focus of this week's discussions at the Federal Reserve's annual Jackson Hole, Wyoming, retreat, where policymakers are expected to shed light on direction of its massive bond purchasing program. The Fed has been actively talking about tapering $120 billion per month in emergency bond purchases in recent weeks, with Fed Chair Jerome Powell insisting the pandemic is still affecting the businesses and consumer confidence in the United States.

In early trading, NYMEX October West Texas Intermediate futures edged up $0.13 to near $67.67 bbl and Brent crude for October delivery gained $0.27 to $71.32 bbl. NYMEX September ULSD advanced more than 1 cent to $2.0775 gallon and September RBOB futures moved up 2.14 cents to $2.2022 gallon.

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