WASHINGTON (DTN) -- After volatile trading for most of the session, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday with solid gains supported by a steep drop in U.S. commercial crude and gasoline inventories along with a rebound in gasoline demand that climbed to the highest level since the week leading up to the July 4th holiday in a sign that falling prices at the gas pump incentivized Americans to take on late-summer road trips.
Other economic indicators released Wednesday also point to steady consumer demand for purchases at stores, online and restaurants, with core retail sales, which excludes cars and gasoline, rising 0.7% in July, matching the June increase, the Commerce Department said Wednesday. The incoming data suggests Americans are maintaining their spending habits despite the highest inflation in nearly four decades.
Against this backdrop, the recent demand figures published by the U.S. Energy Information Administration look particularly encouraging for the final weeks of summer, showing weekly consumption climbing to the second highest rate this year at 9.348 million barrels per day (bpd), up 225,000 bpd or 2.4% from the previous week. On a four-week average basis, gasoline demand in the United States was still some 4.2% below last year's four-week average of 9.466 million bpd.
The late-summer surge in gasoline demand runs counter to the weakness during the second half of June after the U.S. retail gasoline average topped $5 gallon for the first time on record. On Monday, Aug. 15, the Department of Transportation reported vehicle miles traveled on U.S. roads were down 4.8 billion miles or 1.7% in June compared with year prior. Since mid-June, retail gasoline prices have declined for nine consecutive weeks through Monday according to EIA data, falling below $4 gallon for the first time since the final week of February.
The increase in gasoline consumption, along with strong exports at 902,000 bpd during the second week of August, 190,000 bpd above the three-year average, led to a 4.6-million-barrel (bbl) drawdown in gasoline stocks to 215.7 million bbl. Analysts expected gasoline inventories to have decreased by 900,000 bbl.
U.S. commercial crude oil inventories fell 7.1 million bbl last week to 425 million bbl and are now about 6% below the five-year average, with the decline following an increase in commercial reserves of more than 9 million bbl since the final week of July.
The sizable drawdown was realized as U.S. crude exports more than doubled from the previous week to a record high 5 million bpd during the week ended Aug. 12 while domestic crude production fell 100,000 bpd to 12.1 million bpd. A 3.4-million-bbl drawdown from the Strategic Petroleum Reserve was also the smallest draw from emergency reserves since late April.
In financial markets, investors are parsing through the latest minutes of the Federal Open Market Committee's July 26-27 meeting released Wednesday afternoon, indicating central bank officials intend on continuing aggressive increases in the federal funds rate until inflation is brought under control.
"Participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the committee's objectives," the minutes stated. "With inflation remaining well above the committee's objective, participants judged that moving to a restrictive stance of policy was required to meet the committee's legislative mandate to promote maximum employment and price stability."
At the same time, the central bank indicated it could soon slow the speed of monetary tightening, while also acknowledging the vulnerable state of the economy and risk to the downside for economic growth.
"Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation," the minutes said.
Following the minutes release, CME FedWatch Tool showed the probability for a 50-basis-point rate hike in September increased to almost 60% compared with 38.5% for a larger 75-basis-point hike.
Heading into the closing bell, Dow Jones Industrial were down by a little more than 170 points, falling for the first time in six sessions, and S&P 500 had shed 0.72%. In recent trading, crude futures have moved inversely to equities.
At settlement, NYMEX September West Texas Intermediate advanced $1.58 to $88.11 bbl, while ICE October Brent futures gained $1.31 to $93.65 bbl. NYMEX September RBOB gained 3.38 cents to $2.9345 gallon, while the NYMEX September ULSD contract rallied 13.72 cents to $3.6174 gallon.
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