DTN Oil

WASHINGTON (DTN) -- Following Tuesday's explosive rally triggered by chatter, OPEC+ will agree to deepen production cuts at their December meeting, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange softened in early trade Wednesday after industry data from the American Petroleum Institute reported U.S. commercial crude and gasoline inventories unexpectedly increased for the week ended Nov. 19, while an overnight rally in U.S. Dollar Index tied to the release of key economic data domestically further pressured the oil complex.

Near 7:30 a.m. ET, NYMEX West Texas Intermediate futures for January delivery reversed overnight losses to trade near $78.69 per barrel (bbl), and international benchmark ICE January Brent traded little changed near $82.38 bbl. Both benchmarks rallied as much as 3% in the previous session. NYMEX RBOB December futures declined 1.51 cents to $2.3221 gallon and front-month NYMEX ULSD added 0.27 cents to $2.3870 gallon.

The API data released late afternoon Tuesday was bearish for the oil complex, showing domestic crude oil inventories increased by 2.3 million bbl last week, contrasting sharply with market estimates for an 800,000 bbl drawdown. Gasoline stocks also unexpectedly gained 600,000 bbl from the previous week, while the market estimated a 500,000 bbl decline. Distillate stocks, meanwhile, declined by 1.5 million bbl, well above estimates for a 700,000 bbl draw.

DTN Refined Fuels Demand data showed demand for diesel fuel in the United States decreased 0.1% in the reviewed week, likely having peaked seasonally for the fourth quarter, while remaining up 6.8% relative to the same week in 2019.

Gasoline demand also decreased 0.1% last week, according to DTN Refined Fuels Demand data, while U.S. demand is down just 0.8% compared to the same week in 2019. Analysts previously projected gasoline demand would push higher this week in the lead up to Thanksgiving Day Thursday, with over 53 million Americans projected to hit the roads for the extended holiday period.

Also, year-on-year strength in both gasoline demand and diesel demand should be expected to increase in the coming weekly reports from the Energy Information Administration given that at this time last year the United States was seeing the strongest surge of COVID-19 cases and hospitalizations of the pandemic.

In outside markets, the U.S. dollar pushed higher against a basket of foreign currencies to a fresh 17-month high 96.770 cents, further pressuring the oil complex. The greenback's strength comes as investors awaited the release of October durable goods orders and second reading on U.S. gross domestic product for the third quarter. Durable goods orders are expected to rise 0.2% last month after September's 0.3% decline, which would confirm purchases of big-ticket items in October followed overall Retails Sales higher. Overall retail sales rose 1.7%, more than doubling September's 0.8% increase and better than the 1.4% estimate. Despite higher inflation that surged to a three-decade high 6.2% in October, consumer spending in the United States showed no signs of slowing. For August, September, and October the combined estimate for retail sales was 0.4%. Sales increased a total of 3.4% for the three months.

Oil futures rallied on Tuesday after Biden administration announced a 50 million bbl release from Strategic Petroleum Reserves -- a move that was mostly viewed as inadequate to address high gasoline prices. Out of the 50 million bbl of crude to be released, 32 million bbl would eventually be returned to the strategic reserve over the months ahead to replenish stockpiles, while another 18 million bbl will be released as an acceleration of an oil sale authorized by Congress two months ago.

Analysts point out that SPR release would not change market fundamentals that are already tilting towards oversupply. Furthermore, markets are now concerned about potential supply response from the OPEC+ group that is scheduled to consider a 400,000-bpd increase in joint production for January at their Dec. 2 meeting.

OPEC+ in July agreed to gradually return the remaining shut-in production from April 2020, when OPEC+ cut 9.7 million bpd of output in response to the pandemic, in 400,000 bpd monthly increments. In a meeting earlier this month, OPEC+ pushed back against calls from the White House to aggressively increase their output above 400,000 bpd, arguing the market was rebalancing, and projected a global surplus in the first quarter 2022. Faced with supply releases from strategic reserves, OPEC+ could simply forego another output hike in January.

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