DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange plummeted in early morning trade Wednesday after the American Petroleum Institute reported a much larger-than-expected build in domestic crude oil inventories for the second consecutive week through Oct. 29, easing concerns over a tightening oil market while sentiment turned cautious ahead of the likely decision from the Federal Open Market Committee to reduce the pace of bond-buying stimulus, with focus on comments about inflation and slowing economic growth.

The U.S. Federal Reserve is largely expected to announce Wednesday afternoon the reduction of its $120 billion in monthly purchases of bond and mortgage-backed securities, the process also known as "tapering," that was designed to ensure free flow of the credit in the economy stricken by the pandemic. The consensus calls for the central bank to reduce its monthly purchases of Treasuries by $10 billion and mortgage-backed securities by $5 billion. That pace would wrap the process up by around mid-2022. At that time, some analysts suggest the central bank will have to introduce its first interest rate hike after holding it near zero since March 2020. FOMC's announcement is scheduled for 2 p.m. ET, with Chairman Jerome Powell holding a news conference at 2:30 p.m. ET. The Fed Chief will likely be addressing concerns over rising inflation that have spiked to three-decade high 5.4% in September, with economic growth slowing and recovery in the labor still lagging far behind. In doing so, he will attempt to separate the tapering decision from a signal that the Fed is in a hurry to raise interest rates. Whether the Federal Reserve likes it or not, the market has already begun to price in first interest rate hike as early as July 2022.

Just minutes ago, the ADP Employment report for October detailed the addition of 571,000 jobs in October versus calls for 400,000. On Friday, the U.S. Department of Labor will release official data.

Also on the economic calendar Wednesday is the ISM Services index, due out 10:00 a.m. ET, respectively.

The oil complex came under heavy selling pressure early Wednesday after API reported Tuesday afternoon that domestic crude oil stockpiles spiked 3.594 million barrels (bbl) last week, more than twice calls for a 1.5 million bbl build. The data also showed stocks at the Cushing, Oklahoma hub declined 882,000 bbl, a marked slowdown from API's reported 3.73 million bbl drop the previous week, suggesting the pace of Cushing drawdowns has begun to ease. Meanwhile, gasoline stockpiles decreased 552,000 bbl in the reviewed week, missing estimates for a draw of 1.3 million bbl. API data show distillate inventories, including kerosene and fuel oil, gained 573,000 bbl compared to an estimated 1.2 million bbl drop.

DTN Refined Fuels data show gasoline demand in the U.S. decreased 1.3% last week, with total gasoline consumption down 2.5% compared to the same week in 2019. Diesel consumption slipped 1.6%, while remaining 4.4% higher relative to the same week in 2019. Diesel demand is just few weeks away from its fourth quarter seasonal peak.

Near 8:30 a.m. ET, NYMEX West Texas Intermediate futures for December delivery dropped $1.83 to $82.10 bbl, and the ICE January Brent contract declined $1.61 from Tuesday's settlement of $84.72 bbl. NYMEX RBOB December futures plummeted 5.50 cents or 2.5% to $2.3941 gallon and NYMEX ULSD December futures traded 4.37 cents lower at $2.4641 gallon.

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