DTN Oil

WASHINGTON (DTN) -- Following a two-session selloff, oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced in early trading Thursday after American Petroleum Institute data showed combined gasoline and distillate fuel stocks fell by more than 3 million barrels (bbl) during the final week of 2022, offsetting a larger-than-expected build in domestic crude oil stockpiles.

Furter details of the late Wednesday report revealed gasoline inventories fell by 1.2 million bbl in the reviewed week, missing calls for stocks to have increased by 200,000 bbl, while distillate inventory dropped 2.4 million bbl, more than three times expectations for a 600,000 bbl draw. For the week-ended Dec. 23, gasoline demand surged to 9.327 million barrels per day (bpd) -- the highest weekly consumption rate since the last week of September, according to the Energy Information Administration, which could have contributed to the inventory drawdown.

Crude oil inventories gained 3.298 million bbl last week, according to API, far surpassing an expected build of 400,000 bbl. Analysts note that an 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. Yearlong SPR sales by the U.S. government were aimed 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.

Thursday's move higher was realized despite a firmer U.S. Dollar Index that gained 0.05% against a basket of foreign currencies to trade near 104.065 as investors digested the minutes from the December meeting by the Federal Open Market Committee. The minutes showed that not a single central bank official expected to cut federal funds rates this year contrary to expectations by some market participants that the Fed would soon 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."

Federal Reserve officials raised the federal funds rate for the seventh consecutive time in December, slowing the pace of rate hikes to 0.5% from 0.75% seen over the prior three FOMC meetings. The final increase for the year pushed federal funds rates to a range of 4.25% to 4.5%.

Before 2022, there hadn't been a single 0.75% rate increase since 1994, let alone three times in a single year. But rates have been this high, and even higher before -- most recently from 2005 through 2007. The current debate in markets is whether the Fed's aggressive monetary tightening in such a short period of time would tip the economy into recession.

The labor market has remained surprisingly resilient, with job growth still averaging 272,000 for the final three months of 2022. The unemployment rate ticked up a modest 0.2% from a 50-year low 3.5% last year and job openings remained well above 10 million for the month of November, signaling the demand for labor still strong despite rate hikes. Investors will get an update on weekly jobless claims at 8:30 a.m. EST, which closely follows private payroll data from Automatic Data Processing. On Friday, the Department of Labor will release its non-farm employment report for December, with consensus calling for job growth to slow to 200,000 positions.

Near 7:45 a.m. EST, West Texas Intermediate for February delivery advanced to $74.27 bbl, up $1.40, and Brent March futures added $1.53 to $79.35 bbl. NYMEX RBOB February contract gained $0.0385 to $2.2975 gallon, and front-month ULSD futures advanced $0.0750 to $3.0469 gallon.

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