DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange posted steep losses for a second straight session on Wednesday. The losses came after minutes from the Federal Open Market Committee's December meeting revealed no interest rate cuts are on the horizon in 2023, as central bank officials signaled they are committed to fighting inflation despite growing risks of pushing the economy into recession.

Oil markets kicked off the new year with a spectacular selloff, sending front-month West Texas Intermediate and Brent futures as much as $7 per barrel (bbl) lower during just the first two trading sessions of 2023. Investors see higher potential for deeper demand destruction this year both domestically and in other major economies. In China, an abrupt end to zero-COVID policies has so far led to rising infections and a pullback on basic mobility as the Chinese remain deeply skeptical over available vaccines and hospital capacity. Even though early signs point to some recovery in public transportation usage, the real impact on fuel demand won't be noticeable until after Lunar New Year holidays that take place on Jan. 22.

More evidence of demand losses in Asian markets can be found in shipping data for Russian oil exports that fell to a 2022 low in the final weeks of the year as China, Turkey, and India pulled back on crude purchases. Bloomberg data shows four-week average oil shipments out of Russian ports fell 600,000 barrels per day (bpd) through Dec. 31 to 2.615 million bpd. That drop came despite steep discounts offered by Russian operators that are currently selling the Urals blend -- Russia's flagship crude benchmark -- at a $30 discount to the global benchmark Brent.

Domestically, minutes from the FOMC's Dec. 13-14 meeting released Wednesday afternoon showed not a single official forecast a cut in the federal funds rate this year despite expectations by some market observers for the central bank to pivot from its aggressive monetary tightening.

"Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time," the meeting's summary states. "In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy."

Separately, oil traders also await the release of weekly U.S. inventory data from the American Petroleum Institute, delayed by one day due to the New Year's holiday.

U.S. oil inventories likely increased by 400,000 bbl for the week ended Dec. 30, with estimates ranging from a decrease of 4 million bbl to an increase of 4 million bbl.

Analysts note the expected increase would be partly due to another transfer of crude oil from the nation's Strategic Petroleum Reserve to the commercial side of operations last week. The yearlong SPR sales by the U.S. government aim to boost supplies to reduce gasoline prices at the pump, but the sales are winding down, and the government will begin refilling the SPR in February.

Gasoline stockpiles are expected to have increased by 200,000 bbl last week, and stocks of distillates are seen to have fallen by 600,000 bbl. Refinery use likely decreased by 2.7% from the previous week to 89.3% following a slew of outages and run cuts during the Christmas holiday weekend as extremely cold weather and heavy snowfall disrupted operations.

At settlement, WTI for February delivery fell below $73 per bbl to $72.84, down $4.09 on the session, and Brent March futures declined $4.26 to $77.84 per bbl. NYMEX RBOB February contract dropped $0.1020 to $2.2592 per gallon, and front-month ULSD futures ended down $0.1146 to $2.9719 per gallon.

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