DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell sharply in early trade Wednesday, sending U.S. crude benchmark as much as 1.5% lower after the American Petroleum Institute reported across-the-board builds occurred in domestic crude and petroleum product supplies last week, while the U.S. dollar index moved mixed ahead of the release of the key economic data.

Near 7:30 a.m. ET, NYMEX West Texas Intermediate futures for December delivery dropped more than $1 to $83.61 per barrel (bbl) after topping $85 bbl earlier this week, and the international crude benchmark Brent contract declined $0.94 to trade near $85.44 bbl. NYMEX November RBOB retreated 3.68 cents or 1.5% to $2.48 gallon and the front-month ULSD contact dropped 3.60 cents to $2.5413 gallon.

Oil complex came under selling pressure on Wednesday after industry data from the API reported U.S. commercial crude oil inventories unexpectedly increased 2.318 million bbl in the week ended Oct. 22, more than four times calls for a 500,000 bbl build. Unexpected build was accompanied by builds in gasoline and distillate fuels stocks that increased by a combined 1.5 million bbl in the reviewed week. DTN Refined Fuels Demand data showed gasoline demand in the United States increased 1.1% through the week ended Oct. 22, while down just 0.5% against the comparable pre-COVID level in 2019. Diesel demand surged 3.5% from the prior week last week and strengthened 6.9% relative to the same week in 2019.

Crude stockpiles at the Cushing, Oklahoma, hub -- the biggest U.S. crude depot, meanwhile, plunged by a massive 3.73 million bbl after declining by more than 4 million bbl in the prior two weeks. If realized, the drawdown would press Cushing stockpiles below 30 million bbl for the first time since October 2018 when inventories fell to near operational low levels. Minimum operational capacity at the storage tanks in Cushing are estimated between 16 million and 22 million bbl. Historically, Cushing inventories have been seen as a good barometer for how tight the physical market is, while heavily affecting WTI's market structure, with the six-month calendar spread widening to $7.23 bbl at settlement Tuesday -- near Friday's $7.32 bbl better than eight-year high.

Analysts suggest that global shortages of natural gas in European Union and Asia have made the light, sweet crude from Cushing more attractive on the global market because it contains less sulfur than some other types of crude oil that must be processed through units at refineries called hydrocrackers. Hydrocrackers rely on hydrogen usually generated from natural gas -- the cost of which has surged to record highs in parts of Europe and Asia recently.

Natural gas prices surged to record highs in the EU and Asia amid depleted inventories, lower-than-expected output from renewable energy sources, and swift reopening of economies. The Oxford Institute for Energy Studies summarized this confluence of factors, noting it creates "this perfect storm." Analysts at Goldman Sachs estimate global oil demand has already jumped to 99 million bpd this month and will soon top pre-COVID levels, with excess demand from gas-to-oil switching in power generation contributing to at least 500,000 bpd of that consumption. Should winter 2022 prove colder-than-expected, this would most certainly lead to big price spikes for natural gas and coal that would quickly spill over into the oil complex.

In financial markets, equity futures on Wall Street edged lower after a two-day run of record highs and U.S. dollar index was little changed against a basket of global peers as investors await the next batch of economic data for additional clues on the economy's performance in the fourth quarter.

U.S. Census Bureau data this morning is expected to show durable goods orders declined 0.9% in September after rising above consensus in August. Durable goods orders are a subset of retail sales that came in stronger-than-expected with a 0.7% increase last month. U.S. consumer confidence improved slightly in October, according to Conference Board data released Tuesday, reversing a three-month downward trend as concerns about the spread of the Delta variant eased.

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