DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange powered higher early Wednesday after the American Petroleum Institute reported a smaller-than-expected drawdown in U.S. commercial crude stockpiles but a sizable drop in refined fuel supplies during the week ended July 14.

Further details of the API report released Tuesday revealed commercial oil stocks declined 797,000 barrels (bbl) last week, falling short of an expected 1.8-million-bbl drop. Currently, commercial inventories stand at 458.1 million bbl -- about 1% above the five-year average. The expectations for a larger drawdown were in part due to data released from the U.S. Energy Department showing no transfer occurred last week from the Strategic Petroleum Reserves to the commercial side. Stocks at the Cushing, Oklahoma, tank farm -- delivery point for West Texas Intermediate futures -- dropped by a sizable 3 million bbl. Gasoline stocks, meanwhile, fell by 2.8 million bbl through July 14, far above calls for a 1.1-million-bbl draw, while distillate inventory decreased 100,000 bbl compared with an expected 200,000 bbl increase.

Next, oil traders are awaiting the official government report from the U.S. Energy Information Administration, scheduled for 10:30 a.m. EDT release.

Tuesday afternoon, West Texas Intermediate futures broke above the key resistance level of $75 bbl after Saudi Arabia reported its seaborne crude exports fell below 7 million barrels per day (bpd) for the first time this year in May, showed the data published on Joint Organizations Data Initiative (JODI) platform. Saudi oil production was also shown to have dropped by 502,000 bpd to 9.96 million bpd -- two months prior to the introduction of a voluntary 1-million-bpd production cut. There was an unconfirmed report that hit media airwaves on Tuesday, suggesting Riyadh plans to extend the unilateral production cut through the end of the year, potentially rallying WTI above $75 bbl. While the report was quickly withdrawn, oil extended gains ahead of the inventory report.

Capping the upside for the oil complex is a strengthening U.S. dollar that extended gains into the third consecutive session on Wednesday, trading 0.31% higher against the basket of foreign currencies. The greenback's strength comes as investors have fully priced in a 25-basis-point increase to the federal funds rate at FOMC's next week meeting. Investors see a 99% chance that the central bank will raise the federal funds target range to between 5.25% and 5.5%, a nearly 22-year high, according to CME FedWatch Tool. Despite inflation easing and the labor market remaining largely intact, Fed officials repeatedly warned they are prepared to do more to ensure the economy will not reignite inflationary pressures.

Near 7:30 a.m. EDT, front-month West Texas Intermediate on NYMEX gained $0.26 to $76.01 bbl, and ICE September Brent contract advanced $0.49 to trade above $80 bbl. NYMEX August RBOB futures traded little changed near $2.6934 gallon, and August ULSD futures moved up to $2.6321 gallon, up by $0.0327 in overnight trading.

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