Oil Futures Soften as USD Hits 17-Month High, US Crude Build

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session with modest losses after federal data showed U.S. commercial crude oil inventories unexpectedly increased last week on robust production amid gains in the number of operating oil rigs. An ongoing rally in the U.S. Dollar Index tied to a better-than-expected print on jobless claims and upward revision for third-quarter economic growth further weighed on the complex.

On the session, NYMEX West Texas Intermediate futures for January delivery slipped $0.11 to settle at $78.39 barrel (bbl) and the international crude benchmark ICE January Brent contract finished the session little changed at $82.25 bbl. Both benchmarks rallied as much as 3% on Tuesday. NYMEX RBOB December futures declined 1.75 cents to $2.3197 gallon and front-month NYMEX ULSD softened to a $2.3830 gallon settlement. The U.S. Dollar Index once again strengthened against global peers to settle at a 17-month high 96.872, up 0.34% against a basket of foreign currencies.

The U.S. dollar extended its recent gains into Wednesday afternoon following minutes from the Federal Open Market Committee's meeting held on Nov. 2-3 that showed policymakers believe they should be prepared to raise the target range for the federal funds rate sooner than currently anticipated should inflation continue to run hot. The Consumer Price Index -- a measure of inflation -- surged to a 30-year high 6.2% in the 12 months ended in October, undermining the Fed's narrative of "transitory inflation."

Minutes revealed "participants generally saw the current elevated level of inflation as largely reflecting factors that were transitory but judged that inflation pressures could take longer to subside than they had previously assessed."

At the meeting, FOMC announced the start of tapering $120 billion a month in bond-buying stimulus -- a first in a series of steps in normalizing monetary policy. The goal of quantitative easing was to keep capital flowing in the markets while maintaining broader interest rates at low levels to boost economic activity.

Further supporting the dollar, U.S. jobless claims plunged to the lowest level since 1969 at 199,00 new filings -- an encouraging sign for the labor market that has been struggling to recover from the pandemic-induced shock in March 2020. In October, the labor market added 536,000 new jobs and national unemployment rate fell to 4.6%.

Also, U.S. third quarter gross domestic product growth was revised up slightly to 2.1%, which was largely expected by the markets and follows a 6.7% growth rate in the second quarter.

Wednesday's inventory report released by the U.S. Energy Information Administration was mixed, showing unexpected build in domestic crude oil inventories accompanied with larger-than-expected decline in petroleum product supplies and higher fuel demand. Commercial crude oil inventories jumped 1 million bbl from the previous week to 434 million bbl and are now about 7% below the five-year average. The build was realized even as domestic refiners increased run rates for the fifth consecutive week through Nov. 19 to 88.6% of capacity.

Domestic crude oil production, meanwhile, increased 100,000 barrels per day (bpd) to 11.5 million bpd, according to EIA. Oil stored at the Cushing, Oklahoma, hub -- the delivery point for WTI futures -- rose 787,000 bbl from the previous week to 27.4 million bbl. Baker Hughes reported the number of active rigs drilling for oil increased for the fifth week through Wednesday, up six to 467, the highest level since early April 2020.

Additionally, gasoline stockpiles declined slightly above expectations 602,992 bbl from the previous week to 211.4 million bbl. Demand for motor gasoline gained 93,000 bpd from the previous week to 9.334 million bbl, while remaining more than 100,000 above the five-year average. Gasoline consumption in the United States typically strengthens heading into the Thanksgiving holiday, with over 53 million Americans expected to hit the road this week, according to American Automobile Association.

Distillate stocks fell 2 million bbl to 121.7 million bbl and are now about 5% below the five-year average. Distillate demand extended higher for the third consecutive week to 4.391 million bpd.

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

Liubov Georges