Oil Fades From Intra-Session Highs on USD, Mixed EIA Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange eased in market-on-close trade Wednesday after both crude benchmarks tested key resistance levels earlier in the session as market participants balanced a less-than-forecasted draw in domestic crude-oil inventories against a stronger U.S. dollar.

Greenback jumped above the 100-mark on Wednesday, gaining 0.39% against a basket of foreign currencies after inflation indicators in the Eurozone and the United Kingdom cooled more than expected in June. Should the disinflationary trend continue in the coming months, this would likely give European central bankers a pause when considering further rate increases. Domestically, investors have now fully priced in a quarter percentage point rate increase at the Federal Reserve's meeting next week, according to CME FedWatch Tool.

This would lift federal funds rates to a 5.25% and 5.5% range -- a nearly 22-year high. Beyond that, markets don't see much upside to interest rates despite warnings from central bankers that they are prepared to do more should inflationary pressures persist.

Wednesday's inventory report from the U.S. Energy Information Administration was mixed for the oil complex, showing a less-than-expected drawdown in commercial crude stockpiles but a sharp drop in Cushing stocks. Oil stored at Cushing, Oklahoma tank farms, the delivery point for WTI, fell by 2.9 million bbl last week to 38.3 million bbl, according to EIA data. That marked the steepest weekly decline since October 2021.

U.S. commercial crude-oil inventories decreased by 708,000 bbl during the week-ended July 14, bringing stockpiles approximately 1% above the five-year average level. The decline was less than a 1.8 million bbl drop expected by markets and therefore had not delivered a bullish punch.

U.S. crude-oil production, meanwhile, remained unchanged from the previous week at 12.3 million bpd.

Commercial gasoline inventories declined by 1.1 million bpd, in line with market expectations, to 218.4 million bpd. Demand for motor gasoline, however, failed to improve markedly after an 8% drop the prior week, averaging 8.855 million bpd as of July 14.

Gasoline supplied to the U.S. market -- a measure of demand -- continued to trail some 359,000 bpd or 4% below the pre-pandemic level seen in 2019. On a four-week average basis, gasoline demand stood at 9.1 million bpd -- also a full 4% below the same four-week average in 2019.

In distillate fuels, commercial inventories were little changed at 118.2 million bbl, compared with expectations for stockpiles to build by 200,000 bbl. Demand for middle of the barrel fuels jumped by 700,000 bpd in the reviewed week to 3.669 million bpd, bringing the four-week average to 3.4 million bpd, down by 8.3% against a year ago and 1.5% below 2019 levels. Total products supplied over the last four-week period averaged 20.3 million bpd, up by 1.0% from the same period last year.

At settlement, front-month West Texas Intermediate on NYMEX slipped $0.40 to $75.35 bbl after reaching an intra-session high of $76.97 bbl, and ICE September Brent contract eased to $79.46 bbl from $80.93 bbl reached earlier in the session. NYMEX August RBOB futures advanced $0.0261 to finish at $2.7205 gallon, and August ULSD futures moved up to $2.6418 gallon, up by $0.0424 in afternoon trading.

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

Liubov Georges