DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled lower for the fourth straight session on Wednesday, with both crude benchmarks erasing all their gains made this year. The losses came after the weekly inventory report from the Energy Information Administration showed continued soft demand and growing stocks of refined fuels, feeding into concerns over a weakening economy.

More evidence of demand destruction could be found in this week's EIA inventory report, showing four-week average distillate consumption in the U.S. dropped a full 9% below last year's level to 3.7 million barrels per day (bpd). Distillate fuel supplied to the U.S. market -- a measure of demand -- remained firmly below 4 million bpd for the fourth straight week through Dec. 2. It must be noted that distillate demand correlates closely with economic activity, particularly in energy-intensive industries. Although the service sector of the U.S. economy regained momentum in November, manufacturing activity posted its first contraction since May 2020, led by a sharp decline in new orders and production capacities.

"The U.S. manufacturing sector fell to its lowest level since the coronavirus pandemic recovery began," said Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management. "November composite index reading reflects companies' preparation for the lower output in the future."

Further details of the EIA's report show demand for motor gasoline stalled for the third consecutive week at 5% below last year's level at 8.3 million bpd despite the beginning of the holiday season. As a result, stocks of gasoline and distillate fuels rose by a massive 11.5 million barrels (bbl) during the week ended Dec. 2, with a 6.2-million-bbl build realized in distillate stocks alone.

Supporting elements of the report could be found in crude statistics, with commercial inventories having tumbled 5.3 million bbl in the week ended Dec. 2 to 413.9 million bbl. This marked the fourth consecutive weekly drawdown from commercial oil inventories. Since mid-November, commercial crude inventories have declined by a hefty 26.9 million bbl amid gradual slowdown of a yearlong program of oil sales from Strategic Petroleum Reserves, while refiners reduce stock levels ahead of ad valorem taxes on inventory held at year's end in Texas and Louisiana.

The large crude draw was realized as the national refinery run rate increased 0.3% to 95.5% of capacity, the highest utilization rate since August 2019. Crude inputs at refineries increased 53,000 bpd to 16.6 million bpd, a nearly five-month high. Domestic oil production, meanwhile, increased by 100,000 bpd from the previous week to 12.2 million bpd, according to EIA figures.

In broader markets, recession headlines continue to dominate media airwaves after a host of U.S. bank executives warned of a "bumpy road" ahead and signaled preemptive layoffs.

"It shouldn't be surprising to people -- watching the performance of the business this year -- that 2021 was an exceptional year," said Goldman Sachs CEO David Solomon in a Bloomberg interview, adding that "2022 is a different year, and it's a more challenging operational environment."

Bank of America CEO Brian Moynihan said that a "shallow" recession is likely coming in 2023 but a deeper downturn would be backstopped by a strong American consumer that have yet to pull back on spending.

"Businesses are still in good shape and consumer spending remains strong, with households hoarding $1.5 trillion in excess savings from pandemic relief programs. But inflation is eroding everything as excess savings will run out sometime mid-2023. Those things very well may derail the economy and cause mild to severe recession that people are worried about," said JP Morgan Chase CEO Jamie Dimon.

January West Texas Intermediate futures declined $2.24 to $72.01 per bbl -- the lowest settlement on the spot continuous chart since Dec. 21, 2021. February Brent futures on ICE fell $2.18 to settle at $77.17 per bbl -- a 2022 low on a spot continuous basis. January RBOB futures slid to a $2.0772-per-gallon 11 1/2-month low on the spot continuation chart, down $0.0719, and the January ULSD contract declined $0.1350 to an 11-month low $2.7805 per gallon.

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