DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell sharply Wednesday, sending both crude benchmarks as much as 3% lower amid diverging market signals, including resurgent COVID infections across the Atlantic Basin, demand-sapping lockdowns in parts of the European Union and rising shale production in the United States even as domestic crude oil inventories last week returned to a destocking pattern.

Further souring sentiment, U.S. President Joe Biden requested Federal Trade Commission on Wednesday to investigate oil companies regarding artificially boosting prices at the gas pump -- a claim that was quickly rebuffed by the industry.

Gasoline prices across the United States are averaging above $3.40 gallon -- the highest national average in seven years, according to the American Automobile Association. That presents a big political hurdle for the White House ahead of the holiday driving season. As many as 48 million Americans are forecasted to hit the road next week for Thanksgiving celebrations.

Gasoline prices are, however, a function of market fundamentals as well as government regulations but rarely reflect market manipulation at the wholesale level. The White House had previously asked the FTC to monitor the gasoline market for any illegal conduct, leading the agency to increase its oversight on mergers of oil companies.

Shrugging off U.S. calls for more supply, the Organization of the Petroleum Exporting Countries together with Russia-led partners last month decided on measured production increases through the end of the year, citing their forecast for a large buildup in global oil inventories early next year. The International Energy Agency said earlier this week global oil demand would likely lag behind production gains in the United States, Saudi Arabia and Russia.

"World oil supply is set to rise 1.5 million barrels per day (bpd) over November and December, with the U.S. providing 400,000 bpd of the gain," said IEA. "Saudi Arabia and Russia combined would account for 330,000 bpd in line with OPEC+ targets. Total oil supply had already leapt 1.4 million bpd month-on-month in October after the U.S. rebounded from Hurricane Ida."

Against this backdrop, U.S. crude oil inventories declined by a hefty 2.1 million barrels (bbl) last week, according to data released Wednesday morning by the Energy Information Administration, pressing stockpiles to 7% below the five-year average. This was realized as domestic refiners increased run rates for the fourth consecutive week through Nov. 12, up 1.2% to 87.9% of capacity compared with analyst expectations for a 0.7% increase. Additionally, gasoline stockpiles declined 707,000 bbl from the previous week to 212 million bbl compared with analyst expectations for inventories to have decreased by 600,000 bbl last week. Demand for motor gasoline remained steady near 9.241 million bpd, slipping only marginally from the prior week, while remaining more than 100,000 bpd above the five-year average. If gasoline demand follows pre-COVID seasonality, it would trend lower through the fourth quarter before a final surge amid the Christmas holiday.

Distillate stocks fell by 824,000 bbl to 123.7 million bbl and are now about 5% below the five-year average. Analysts had estimated a 1.2 million bbl decline from the previous week. Distillate demand extended higher for the second consecutive week to 4.350 million bpd, gaining 70,000 bpd -- directionally in line with a 0.2% increase seen in DTN Refined Fuels Demand data. Total U.S. diesel demand was up 4.5% relative to the same week in 2019, weakening on a relative seasonal basis after being up 7.1% compared to 2019 levels, according to DTN data.

NYMEX West Texas Intermediate futures for December delivery dropped to $78.36 bbl at settlement, down $2.40 on the session, with WTI futures further pressured by a strong U.S. dollar. While the U.S. Dollar Index edged down 0.12% against a basket of foreign currencies to settle at 95.829, the decline was from a fresh 16-month high 96.270 traded overnight, suggesting profit-taking. The dollar has an inverse relationship with the WTI contract since oil trades globally in the U.S. currency.

The January WTI contract settled $2.19 lower at $77.55 bbl in the backwardated market ahead of the December contract's expiration Friday (11/19) afternoon. Brent January futures declined $2.15 to settle at $80.28 bbl, while NYMEX RBOB December futures plunged 6.94 cents to $2.2803 gallon and front-month NYMEX ULSD futures fell 6.65 cents for a $2.3644 gallon settlement.

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