DTN Oil

WASHINGTON (DTN) -- Except for the ULSD contract that advanced for a third consecutive session, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell Tuesday as traders parsed through the latest macroeconomic data ahead of the Federal Open Market Committee meeting that is likely to approve a third consecutive 0.75% rate hike.

Also today, traders were positioning ahead of weekly inventory data from the American Petroleum Institute scheduled for 4:30 p.m. EDT release, followed by official data from the U.S. Energy Information Administration on Wednesday morning. Commercial crude-oil inventories likely declined by 2.2 million barrels (bbl) for the week ended Sep. 17 following a 2.4 million bbl increase in the previous week. At 429.633 million bbl, federal data show commercial oil inventories currently about 2% below five-year average. Gasoline stockpiles are expected to decrease by 500,000 bbl from the previous week, while stocks of distillate fuels seen rising by 500,000 bbl. Demand for middle-of-the-barrel fuels, which correlates closely with economic activity, slumped mid-September to the lowest weekly rate since 2020 at 3.132 million barrels per day (bpd), according to the EIA, further supporting the narrative of demand destruction. Refinery use, meanwhile, likely slipped by 0.1% from the previous week to 91.4%.

In financial markets, stocks on Wall Street slumped as selling accelerated into Tuesday afternoon ahead of the Federal Reserve's key decision on interest rates. FOMC began its two-day policy meeting Tuesday, where central bankers are expected to approve its third consecutive interest-rate increase of 0.75% on Wednesday, while signaling that interest rates will go higher for longer to bring inflation under control. Investors see a small chance of an even larger rate hike of a full percentage point at the Fed's policy meeting. A few analysts have suggested the August inflation report showing relentless rise in core consumer prices could trigger a debate over the larger rate move. But others think surprising the public with a larger rate hike could fuel questions over growing risks that the central bank would tip the economy into recession.

On Tuesday, investors in interest-rate futures markets saw an 82% probability of a 0.75% rate rise and an 18% probability of a full-point increase, according to CME Group.

In Europe, money markets are rapidly dialing up calls for the Bank of England to deliver two outsized rate increases by the end of the year, with traders placing around a 60% chance of a 0.75% increase on Thursday. That would be the bank's largest increase since 1989, when it jacked up borrowing.

The U.S. Dollar Index, which has an inverse relationship with West Texas Intermediate, strengthened against a basket of foreign currencies to settle at 109.960. Earlier this month, the dollar index spiked to a 110.785 more than 20-year high amid rising bets that the Federal Reserve will have to hike interest rates aggressively this week, and at their two remaining meetings in 2022 to draw down excess liquidity from the market.

WTI for October delivery expired at $84.45 bbl, down $1.28 bbl from the previous session, while the next-month November WTI finished with a $0.51 discount. International crude benchmark Brent for November delivery declined $1.38 bbl to $90.62 bbl. NYMEX ULSD October futures advanced 6.14 cents to $3.3722 gallon, and the front-month RBOB contract fell 1.63 cents to $2.4478 gallon.

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