Oil Futures Down on Large Crude Build, Slowing Growth Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In pre-inventory trade Wednesday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shifted lower after preliminary data from the American Petroleum Institute showed a much larger-than-expected build in domestic crude oil inventories. Adding pressure is myriad economic indicators from major global economies suggesting sharply decelerating growth in the fourth quarter to rising commodity prices and shortages of labor.

U.S. commercial crude oil inventories increased 3.294 million barrels (bbl) in the week ended Oct. 15, according to the data published by API, well above calls for an increase of 700,000 bbl. Should the build be confirmed in the U.S. Energy Information Administration report due out 10:30 a.m. ET, this would mark the fourth consecutive weekly increase in domestic crude oil inventories since mid-September. API also showed stocks at the Cushing, Oklahoma hub fell 2.5 million bbl.

API reported gasoline stockpiles declined 3.5 million bbl in the week reviewed, more than three times estimates for 1.1 million bbl draw, while distillate inventories dropped 3.0 million bbl, more than three times an expected decline of 900,000 bbl.

DTN Refined Fuel data for the week ended Oct. 8 showed demand for motor gasoline in the U.S. decreased 0.1% in the reviewed week and diesel consumption declined 1.0%. EIA data for the same week showed total domestic gasoline demand down 2.7% compared to the same week in 2019 and weakening seasonally after being down 1.6% from 2019 levels in the prior week. Diesel demand was up 5.2% relative to the same week in 2019, weakening after being up 5.9% compared to 2019 levels.

Near 8:30 a.m. ET, NYMEX West Texas Intermediate futures for November delivery fell $0.85 to $82.11 bbl ahead of expiration Wednesday afternoon, and next-month delivery December WTI narrowed its discount to $0.56 bbl. The December ICE Brent futures dropped below $85 bbl in overnight trade to $84.29 bbl. November RBOB futures on NYMEX fell 2.45 cents to $2.4510 gallon, and front-month ULSD futures declined 2.65 cents to $2.5342 gallon.

The oil complex also came under selling pressure from the International Monetary Fund's downward revision Tuesday to Asia's global growth estimate. IMF trimmed its Asia's outlook by 1.1% this year to 6.5%, citing supply chain issues and growing tally in new COVID-19 infections. The regional economy is expected to expand 4.9% in 2022, 0.4% higher than the previous forecast. IMF's growth downgrade follows a disappointing print on gross domestic product in China, the region's largest economy, where the third quarter growth rate badly missed expectations with 4.9% compared with the previous quarter's 7.9%. The slower-than-expected GDP growth reflects a range of factors, including fading effects of stimulus enacted in the immediate aftermath of the pandemic last year, a crackdown on private sector, and energy crisis caused in part by soaring coal prices and more aggressive energy targets, as well as disruptions to the supply chain caused by COVID-19 outbreaks.

Domestically, industrial output in September unexpectedly fell 1.3% compared with calls for a modest growth of 0.2%, with Hurricane Ida-caused disruptions along the Louisiana Coast responsible for 0.6% of the September decline. Ongoing shortages of semiconductors led to a 7.2% plunge in the production of motor vehicles and parts and caused more than half of the drop off in factory output last month.

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

Liubov Georges