Oil Gains Ahead of Inventory Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In early trade Wednesday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved higher as market participants await the release of weekly inventory data on U.S. crude and refined products stockpiles and the policy statement from the U.S. Federal Open Market Committee that is expected to signal the first interest rate increase in three years and to provide further details on unwinding its monthly bond purchasing programs.

Near 7:30 a.m. ET, West Texas Intermediate futures for March delivery added $0.80 to trade at $86.40 per barrel (bbl), and international crude benchmark Brent jumped above $89 bbl. Both benchmarks rallied as much as 2% on Tuesday. NYMEX February RBOB futures advanced 3.84 cents to $2.4979 gallon, and the front-month ULSD contract gained nearly 4 cents to $2.7097 gallon.

The American Petroleum Institute on Tuesday afternoon reported domestic crude oil inventories declined in line with expectations during the week-ended Jan. 21, down 875,000 bbl compared with calls for a draw of 800,000 bbl. Stockpiles at Cushing hub, Oklahoma, the delivery point for the WTI contract, dropped by 1 million bbl. At 33.5 million bbl, Cushing stockpiles currently stand at their lowest level since 2012 and more than 30% below the five-year average. In refined fuels, the data showed gasoline stockpiles increased 2.4 million bbl last week, also nearly matching expectations for a 2.3 million bbl build, while distillate inventories dropped by a larger-than-expected 2.2 million bbl.

DTN Refined Fuels Demand data shows gasoline consumption in the United States decreased 2.2% last week, while still up 3.9% year-on-year and diesel demand fell 2.1% from the prior week. Total U.S. diesel demand was down 0.5% year-on-year for the week but up 3.6% from the same week in 2020.

U.S. Energy Information Administration will release its weekly inventory report at 10:30 a.m. ET.

In financial markets, U.S. equity futures powered higher in tandem with a strengthening greenback against a basket of foreign currencies in overnight trade to climb above the 96-level. The gains come as investors await this afternoon's conclusion of a two-day FOMC meeting and statement on monetary policy from Federal Reserve Chairman Jerome Powell at 2:00 PM ET. FOMC will likely hold interest rates at their current near zero levels but could announce a quicker pace in unwinding monthly bond purchases.

Stocks on Wall Street finished lower again Tuesday following another whipsaw session that lifted the CBOE's VIX volatility gauge close to the highest level of the year. Speculation has swirled that the central bank will be forced to move more aggressively to rein in surging inflation that came in at 7% in December -- the highest in 40 years. Goldman Sachs forecasts at least four hikes in the federal funds rate this year. CME Group's FedWatch tool sees a small chance for the central bank to announce a rate hike this afternoon, and overwhelmingly expect a 25-basis point increase on March 16 when FOMC meets next.

On the geopolitical front, White House is reportedly considering export controls on Russia's high-tech and semiconductor industries. Specifically, the United States is threatening to use the foreign direct product technology to halt shipments of essential parts Russia needs to grow its industrial capacities. White House said that export control measures would go beyond sanction packages the United States and European allies are prepared to enact should Russia invade Ukraine.

Such a move would likely be met with retaliatory measures from the Kremlin that could include the reduction or pause of crude and gas shipments to the West.

Russia is a major gas supplier to the European Union, accounting for the supply covering almost 40% of its energy demand. Some European countries, including Finland, Lithuania, and Hungary, meet nearly 70% of their energy demand with Russian gas imports. European gas prices surged at the beginning of the week amid fears tensions along the Ukrainian border could disrupt gas flows.

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

Liubov Georges