DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session higher, although all petroleum contracts moved off intra-session highs after weekly federal inventory data showed a large build in domestic gasoline and distillate stockpiles and a sharp contraction in fuel demand hammered by the resurgent pandemic.

The U.S. Energy Information Administration reported Wednesday morning total petroleum supplies in the U.S. increased by 10.2 million barrels (bbl) during the final week of 2021 -- the first build in four weeks. The report was overwhelmingly bearish for the refined fuels complex, heightening concerns over omicron-led demand destruction. Gasoline consumption slumped 1.5 million barrels per day (bpd) or 16% from the previous week to 8.172 million bpd -- the lowest since the final week of February 2021. EIA figures were directionally in line with DTN Refined Fuels Demand data that found an 18.4% decline in gasoline use during the final week of 2021. The fresh data might suggest some Americans have begun to pull back on driving amid a fourth wave of the pandemic that is being led by a highly contagious omicron variant of coronavirus. Gasoline stockpiles climbed by a massive 10.1 million bbl to 232.8 million bbl compared with analyst expectations for inventories to have increased by 1.1 million bbl.

Demand for middle distillates also contracted by a sharp 312,000 bpd to 3.739 million bpd, according to the EIA report. Distillate stocks rose by 4.4 million bbl to 126.8 million bbl and are now about 16% below the five-year average.

The report was more supportive for the crude-oil complex, showing a 2.1 million bbl drawdown from commercial crude-oil inventories and higher demand from domestic refiners. At 417.9 million bbl, domestic crude-oil inventories are currently stand about 8% below the five-year average.

Oil stored at the Cushing, Oklahoma, hub, the delivery point for West Texas Intermediate futures, continued higher, up 2.577 million bbl from the previous week to 37.306 million bbl.

Refiners, meanwhile, increased run rates by 0.1% last week to 89.8% of capacity compared with estimates for a 0.2% gain. Domestic production remained unchanged from the previous week at 19-month high 11.8 million bpd, according to EIA data.

In outside markets, U.S. equities accelerated losses in afternoon trade Wednesday, with the Dow Jones Industrial suffering its first day of losses in 2022 as investors digested minutes from the Federal Reserve's December policy meeting where officials revealed the extent of their concern over raging inflation. "Inflation readings had been higher and were more persistent and widespread than previously anticipated," the minutes said. "Some participants noted that ... the percentage of product categories with substantial price increases continued to climb." The Fed said last month it would reduce the monthly bond purchases it has made since the spring of 2020 -- which are intended to lower long-term rates -- at twice the pace it had previously set and will likely end those purchases in March. The Fed's policymakers also suggested they could hike short-term benchmark interest rate three times this year. That signaled a significant pickup from their September meeting, when the 18 policymakers split over whether to lift rates a single time in 2022. Faster-than-expected increase in interest rates joined with slowing corporate earnings could undermine already fragile economic recovery hammered by COVID-19 variants and potential retreat of consumer spending.

On the session, the U.S. dollar softened 0.09% against basket of foreign currencies to finish at 96.182, while lending some support to the front-month WTI futures that settled $0.86 higher at $77.85 bbl, a fresh 6-1/2 week high. International crude benchmark Brent for March delivery advanced $0.80 for a $80.80 bbl settlement. NYMEX February RBOB futures surged 1.58 cents to $2.2921 gallon, with the front-month ULSD contract gaining to $2.4461 gallon, 3.66 cents higher from Tuesday's settlement.

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