DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session higher as investors parsed through minutes from the most recent Federal Open Market Committee meeting released this afternoon that suggest the central bank is unlikely to raise the federal funds rate by more than 25-basis points next month. Also pushing oil was federal data on last week's change in U.S. petroleum stocks that showed larger-than-expected declines in refined fuels supplies.

Federal Reserve officials agreed during the Jan. 25-26 meeting that it was time to raise interest rates and shrink its balance sheets "soon" to quell inflationary pressures within the economy. U.S. inflation that spiked to 7.5% last month is now "broadening to the sectors of the economy not immediately affected by the pandemic," according to FOMC minutes. The minutes, however, made no mention of a more aggressive 50-basis point rate increase when the FOMC next convenes on March 15-16 that is now considered consensus among market participants.

Markets have been on edge over the past several weeks as soaring inflation and hawkish talk from some Fed officials, including St. Louis Fed President James Bullard, has prompted traders to price in the equivalent of seven 0.25% rate hikes this year. Market pricing eased some after the minutes were release, with a 50% chance now seen that the Fed lifts the benchmark rate by 50 or 75 basis points in March.

On the data front, U.S. retail sales surged 3.8% in January, the Census Bureau reported Wednesday. Economists expected the report to show sales rose 2.1% in January after a 1.9% decline in December.

Separately, U.S. industrial production rebounded 1.4% in January after slipping 0.1% the prior month, according to the Federal Reserve data. Economists expected industrial production to rise by a smaller 0.4%. The solid rebound in industrial production was led by a spike in utilities output, which skyrocketed by 9.9% amid the arrival of significantly colder-than-normal weather.

EIA's weekly inventory report released Wednesday morning was mostly supportive for the oil complex, showing total petroleum stockpiles declined again last week, and now stand at their lowest since September 2008. Oil stored at the Cushing hub in Oklahoma -- the delivery point for the West Texas Intermediate futures contract -- fell to just 33% of working capacity last week, lending support for the front-month WTI contract. WTI's backwardated six-month calendar spread settled at a $10.21 barrel (bbl) record high Wednesday.

Commercial crude oil inventories unexpectedly increased 1.1 million bbl to 411.5 million bbl, now 10% below the five-year average, while 2.7 million bbl of crude oil was dispersed from the Strategic Petroleum Reserve last week.

The unexpected crude build was realized as refiners scaled back run rates to the lowest in three months at 85.3%, processing 700,000 barrels per day (bpd) less crude compared with the previous week. Gasoline production decreased last week, averaging 8.8 million bpd. Distillate fuel production decreased last week, averaging 4.6 million bpd.

In refined fuels, gasoline stockpiles unexpectedly fell 1.3 million bbl to 247.1 million bbl even as demand for motor gasoline fell 556,000 bpd to 8.570 million bbl. Distillate stocks fell by 1.6 million bbl to 120.3 million bbl, and remain about 19% below the five-year average, the EIA said.

On the session, WTI March futures advanced $1.59 to $93.66 bbl, and international crude benchmark Brent for April delivery rallied $1.53 to $94.81 bbl. NYMEX March RBOB futures added 0.80 cents to $2.6771 gallon, and the front-month ULSD contract settled little changed at $2.8575 gallon.

Oil futures moved sharply lower following the regular session close of trading.

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