DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent futures followed equity markets higher in afternoon trade Thursday, with both crude benchmarks settling a volatile session with gains around 2% despite September's consumer price index revealing core inflation, affecting about 80% of the U.S. economy, climbed to the highest level since 1982, with little indication of easing despite a series of aggressive rate hikes from the U.S. Federal Reserve.

September's CPI reading confirmed inflation is becoming more entrenched in the core service sectors of the U.S. economy, making the case for a so-called "soft-landing" -- when the central bank brings down inflation without tipping the broader economy into recession -- more elusive. Typically, services components of the CPI have a strong tailwind that will require more aggressive rate hikes and recession-like step down in consumer demand to cool that part of the economy.

For context, all-item services index less energy and food, comprised of shelter costs, transportation services and medical care services, rose to 6.6% above year ago -- the highest level since 1982. That reading was realized despite easing gains in the energy index that increased 19.8% in the 12 months ending in September and a slower pace of increases for the food index that rose to 11.2% over the last year. Fed's Funds Rate futures priced in a 96.6% chance for the central bank to raise interest rates by another 75 basis points during their Nov. 1-2 meeting, which would be the fourth consecutive rate increase of this magnitude.

Surprisingly, the U.S. dollar index reversed lower after initially spiking in reaction to the CPI release in likely technical trading to settle the session 0.97% lower against a basket of foreign currencies at 112.253.

NYMEX November West Texas Intermediate futures settled $1.84 higher at $89.11 bbl, and ICE December Brent futures advanced $2.12 to $94.57 bbl. NYMEX November ULSD futures rallied 16.2 cents to $4.0948 gallon -- a 3-1/2 month high settlement on the spot continuous chart. November RBOB futures gained 7.31 cents with a $2.7034 gallon settlement.

Equities staged a massive comeback Thursday, with the Dow Jones Industrial Average rising 827.87 points or 2.83% to close at 30,038.72 after being down more than 500 points earlier in the day. The S&P 500 climbed 2.6% to 3,669.91, breaking a six-day losing streak. The Nasdaq Composite gained 2.23% to end the day at 10,649.15.

Thursday's higher settlements came despite weekly inventory data from the U.S. Energy Information Administration showing commercial crude and gasoline stockpiles increased by a combined 11.9 million bbl during the week-ended Oct. 7, a much larger-than-expected margin. The large build was realized on the back of 7.7 million bbl drawdown from the Strategic Petroleum Reserve, while refiners sharply cut run rates by 1.4% from the previous week to 89.9% of capacity.

U.S. crude oil production, meanwhile, fell 100,000 bpd to 11.9 million bpd, according to EIA.

In the gasoline complex, commercial stockpiles rose 2 million bbl to 209.5 million bbl, contrary to expectations for inventories to have decreased 1.2 million bbl. Gasoline demand decreased 1.189 million bpd to 8.279 million bpd after reaching the highest weekly consumption rate this year in closing out the third quarter at 9.465 million bpd.

Distillate stocks dropped 4.9 million bbl to 106.1 million bbl, and are now about 23% below the five-year average, EIA said. Analysts anticipated distillates inventories would fall by 1.7 million bbl from the previous week.

Demand for distillate fuels, which typically correlates with economic activity, in the United States, unexpectedly jumped 265,000 bpd from the previous week to 4.370 million bpd -- the highest weekly consumption rate since early July. U.S. distillate fuel consumption remained well below 2021 levels for the past 2-1/2 months however, averaging just 3.6 million bpd.

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