Oil, Equities Gain Momentum as USD Nosedives on BOE Buying

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- West Texas Intermediate and Brent crude futures advanced more than 4% on Wednesday amid a one-two punch of a rapidly weakening U.S. dollar after Bank of England announced a new bond-buying program to stabilize the British pound on foreign exchange markets, and bullish inventory data from the Energy Information Administration showing a sharp increase in domestic gasoline and distillate fuel demand.

Total refined product supplied to the U.S. market, a measure of demand, jumped 1.8 million bpd last week to 20.77 million bpd, the third highest weekly implied demand rate during the third quarter, according to EIA data.

U.S. demand for distillate fuels, which correlates closely with economic activity, unexpectedly spiked 768,000 bpd to 4.178 million bpd -- the highest weekly consumption rate since early July. The sharp jump in domestic demand, which held well below 2021 levels for the past 2-1/2 months, averaging just 3.6 million bpd, might suggest renewed strength for domestic manufacturers. Business activity rose to a two-month high in September, and new orders grew for the first time in four months during the final month of the third quarter, which ends Friday.

For gasoline, demand rose 504,000 bpd from the previous week to 8.825 million bpd, and gasoline stocks were drawn down by a hefty 2.4 million bbl to 212.2 million bbl, a nearly 11-month low.

In foreign exchange markets, U.S. dollar whipsawed lower from a fresh more than 20-year high at 114.745 reached overnight following an announcement from the Bank of England that it would purchase long-dated UK bonds to restore stability in financial markets. The British pound plunged earlier this week as the BOE lifted interest rates to fight inflation while the newly installed UK prime minister, Liz Truss, plans to cut taxes to stimulate economic growth.

The BOE announcement triggered a rally in equity trading, which follows this week's move by Dow Jones Industrials into bear market territory. DJIA jumped 548.75 points or 1.9% to 39,683.74, the S&P 500 rose 2% to 3,719.04, and the Nasdaq Composite gained 2.05% to 11,051.6.

At settlement, November WTI futures spiked $3.65 to $82.15 bbl, rallying from Monday's $76.42 nine-month low on the spot continuous chart. ICE November Brent futures settled $3.05 higher at $89.32 bbl ahead of expiration Friday afternoon, with the December contract slightly narrowing its discount to November delivery to $1.27 bbl.

NYMEX October RBOB futures gained 8.46 cents to $2.5779 gallon, with the November contract up 8.9 cents at $2.4617 gallon. The October ULSD contract rallied 18.95 cents to $3.4494 gallon, widening its premium to the November contract to 11.22 cents. October products futures also expire Friday afternoon.

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

Liubov Georges