DTN Oil

WASHINGTON, D.C. (DTN) -- Following a two-session selloff, oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday with modest gains after inventory data from the Energy Information Administration showed a larger-than-expected drop in the U.S. refinery run rate last week triggered by unusually cold weather across Texas and mid-Western states along with a jump in crude and refined products exports.

The effect of last week's widespread blast of bitter cold weather was all over the EIA's inventory report, showing a massive 12.4% drop in the national refinery run rate and a 2.8 million bpd decline in refined fuel demand. Some refiners opted for a partial shutdown of production units not to risk the safety of personnel and equipment. On a weekly basis, refiners processed just 13.820 million bpd of crude oil, down 2.329 million bpd from the previous week. West Texas Intermediate gained on expectations refiners will pull on more crude as units return from the late-year disruptions.

The large falloff in refinery runs combined with gains in domestic oil production led to a 1.7 million bbl build in commercial crude stockpiles which compared with expectations for a 400,000 bbl increase. At 420.6 million bbl on Dec. 30, commercial crude stockpiles stand about 4% below the five-year average. Oil stored at the Cushing tank farm in Oklahoma, the delivery point for WTI futures, also increased by 244,000 bbl to 25.3 million bbl.

Also lending pricing support for the oil complex was a large gain in crude and refined products exports, which increased by 1.3 million bpd last week to 10.5 million bpd. The U.S. exported 4.207 million bpd of crude oil in the reviewed week and more than 6 million bpd of refined products, including gasoline, jet fuel and distillates. Domestically, demand for refined fuels fell off the cliff last week but the weather-related disruption is unlikely to endure in the coming weeks. Still, demand for distillate fuels fell to the lowest rate since April 2020 when the coronavirus pandemic shuttered most of the economy, and the slowdown in U.S. manufacturing activity experienced in the fourth quarter is expected to continue in early 2023. Diesel demand closely correlates with commercial and industrial activity. Total products supplied to the U.S. market, a measure of overall domestic product demand, averaged 20.5 million bpd over the four weeks ended Dec. 30, down 4.3% from the same period last year.

Thursday's move higher was realized despite a firmer U.S. dollar index that rallied 0.78% against a basket of foreign currencies to settle at 104.828 as investors continue to parse through the minutes of the December meeting by the Federal Open Market Committee. The minutes show not a single central bank official is expected to vote to cut the federal funds rate this year.

FOMC raised the federal funds rate for a seventh consecutive time in December, trimming the size of the hike to 0.5% from 0.75% seen over the prior three FOMC meetings. The final increase for the year pushed the federal funds rate to a target range of 4.25% to 4.5%. The current debate in markets is whether the Fed's aggressive monetary tightening in such a short period of time will tip the economy into recession.

"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."

At settlement, WTI for February delivery advanced to $73.67 bbl, up $0.83, and Brent March futures added $0.85 to $78.69 bbl. NYMEX RBOB February contract gained $0.0079 to $2.2671 gallon, and front-month ULSD futures settled little changed at $2.9723 gallon.

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