DTN Oil

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange sold off during market-on-close trade Monday following a sideways trade pattern for most of the session after dropping back from six-week highs as the U.S. dollar strengthened to a two-week high, with the late session falloff realized ahead of an active week of economic data and follows the decision by Organization of the Petroleum Exporting Countries and Russia-led allies to reduce their production beginning in November.

The U.S. dollar gained 0.34% to a two-week high 113.071, advancing for the fourth consecutive session Monday on widespread expectations that the Federal Open Market Committee would again lift the federal funds rate 0.75% when they meet Nov. 1-2.

Chicago Federal Reserve Bank President Charles Evans speaking at the National Association for Business Economics 64th annual conference in Chicago this morning said inflation has spread through the U.S. economy that will require higher interest rates. Evans expects the federal funds rate to rise to slightly more than 4.5% by early next year from 3% to 3.25% now, and then remain at that level for some time.

Those comments follow Friday's Bureau of Labor Statistics nonfarm employment report showing 263,000 new jobs were created in September, with U.S. job growth during the third quarter at 1.115 million. While job growth again slowed, monthly job gains have remained robust, adding inflationary pressure for the U.S. economy.

On Thursday (10/13), BLS is expected to report the consumer price index increased 0.2% in September from August, while up 8.1% year-on-year. While energy costs eased in September, food costs are expected to have again increased in closing out the third quarter, offering evidence of broadening inflation.

On Tuesday, the International Monetary Fund, which has cautioned climbing interest rates globally could press the world economy into recession, will release its World Economic Outlook at 9 AM ET.

Friday (10/7) afternoon, the Department of Energy announced winning bids for 10.15 million bbl of crude oil from the Strategic Petroleum Reserve for distribution in November, which follows the disbursement of 155 million SPR barrels to offset lost supply caused by Russia's invasion of Ukraine in late February. The November distribution of SPR crude, with the sale of those barrels announced in late September, could be followed by further drawdowns in emergency reserves following OPEC+'s Oct. 5 decision to cut production by 2 million bpd beginning Nov. 1. The White House called the OPEC+ decision disappointing and short-sighted, and said it would consider multiple responses, including further drawdowns from the SPR.

Energy Information Administration data show crude oil held in the SPR ending the third quarter at 416.4 million bbl, the lowest number of emergency barrels since July 1984. Since Biden was sworn in as president, the SPR has been drawn down by 221.7 million bbl or 35%.

Under its obligation with the International Energy Program, the U.S. agrees to hold 90 days of net imports of oil and oil products. The United States is a net exporter of oil products, while averaging 6.34 million bpd of crude imports and 3.345 million bpd of crude exports so far in 2022. Based on recent weekly disbursements, the United States could continue releasing SPR crude oil through the end of Biden's first term while maintaining its obligation with the IEP.

At settlement, NYMEX November West Texas Intermediate futures ended $1.51 lower at $91.13 bbl, having fallen from a $93.64 six-week high on the spot continuous chart. ICE December Brent futures settled with a $1.73 loss at $96.19 bbl, reversing off a $98.75 six-week high on the spot chart.

NYMEX November ULSD futures erased about two-thirds of Friday's advance today with a $3.9147 gallon settlement, reversing lower from a $4.0859 six-week spot high. November RBOB futures ended down 11.18 cents with a $2.6228 gallon settlement, reversing lower from a $2.7685 six-week high on the spot continuous chart.

Brian L. Milne can be reached at brian.milne@dtn.com