WTI Surges on Large Crude Draw Ahead of FOMC Announcement

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange pushed higher in pre-inventory trade Wednesday after preliminary data from the American Petroleum Institute showed U.S. commercial crude oil inventories once again fell above consensus last week amid ongoing production outages in offshore Gulf of Mexico, while global financial markets moved to risk-on sentiment following a reported deal between China's Evergrande and private creditors on more than $36 million in loan payments to fuel additional buying interest.

Near 7:30 a.m. ET, NYMEX November West Texas Intermediate advanced $1.09 to $71.58 per barrel (bbl) and Brent crude for November delivery added $1.02 to trade back above $75 bbl. NYMEX October ULSD futures surged 2.55 cents to $2.1993 gallon, and front-month RBOB futures gained 2.62 cents at $2.1314 gallon.

Early morning gains in the oil complex underpinned by the bullish inventory report released by the API Tuesday afternoon showing U.S. commercial crude oil inventories decreased 6.108 million bbl in the week-ended Sept. 17, more than twice calls for a draw of 2.4 million bbl. If confirmed in government data this morning, larger-than-expected crude draw would press oil inventories some 8% below the five-year average. Domestic crude stockpiles remained in a destocking pattern since the first week of August, drawing down more than 20 million bbl over the past two months.

Data also showed stocks at the Cushing, Oklahoma hub dropped 1.748 million bbl. Gasoline stockpiles declined 432,000 bbl in the profiled week, below estimates for a 1 million bbl decrease. DTN's Refined Fuels Demand data revealed total U.S. gasoline demand softened 1.3% compared to the same week in 2019, after being down 2.4% from 2019 levels in the prior week.

API data show distillate inventories dropped 2.720 million bbl, surpassing an estimated decline of 190,000 bbl. Diesel demand was up 2.3% relative to the same week in 2019, according to DTN's Refined Fuels Demand data, weakening slightly after being up 2.8% compared to 2019 levels in the prior week.

Separately, Organization for Economic Cooperation and Development on Tuesday revised lower its 2021 global and U.S. growth projections, citing severe disruptions to global supply chains and higher-than-expected inflation across G20 countries. Inflation is now expected to accelerate through at least 2022, hitting 3.7% in 2021, up 0.2% from the previous forecast, and 3.9% next year on a 0.5% upward revision.

"The impact of past increases in shipping costs and commodity prices is already sizeable in the G20 economies, accounting for much of the rise in inflation over the past year and is likely to linger through much of 2022 even if there are no further cost increases," said OECD.

OECD's revised inflation projections come ahead of a highly anticipated policy announcement from the U.S. Federal Open Market Committee that will wrap up its two-day meeting this afternoon, with a statement at 2:00 p.m. ET, and a press conference with Chairman Jerome Powell 30 minutes later. Investors will be looking for indications as to when the central bank will begin slowing the pace of its $120 billion in monthly bond and mortgage-backed securities purchases. That would mark the first in a series of steps that will likely lead to an increase in the federal funds rate that are currently set at a record low range between 0% and 0.25%.

Wednesday morning, markets breathed a sigh of relief after China Evergrande Group said it had found a way, through "private negotiations," to avoid a $36 million dollar bond payment that could have triggered a damaging default for one of the world's most indebted property groups. Evergrande's potential collapse, and the spillover effects into the broader financial system in the world's second-largest economy, has kept markets on edge for much of the week. A $18.6 billion liquidity injection from the People's Bank of China amid the reopening of stock markets following two days of autumn holiday celebrations in China, also suggests an accommodative stance by Beijing ahead of Thursday's debt payment deadlines.

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

Liubov Georges