DTN Oil

WASHINGTON, D.C. (DTN) -- Following a four-session rally, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange turned mixed early Wednesday after the American Petroleum Institute reported domestic crude and distillate stockpiles unexpectedly rose last week while investors in financial markets await the rate decision from the Federal Open Market Committee this afternoon following their two-day meeting on monetary policy.

A consensus of economists and investors calls for the U.S. central bank to raise the federal funds rate by another 0.25% this afternoon to a range of 5.25% by 5.5%, which would be its highest in 22 years. This would mark the 11th total increase in borrowing costs since March 2022.

The decision has been fully priced in by markets for weeks now, limiting its hawkish punch. But Fed Chairman Jerome Powell's news conference scheduled 30 minutes after the decision could pour cold water on market sentiment, as investors remain largely unconvinced that the Federal Reserve would continue raising borrowing costs after today's meeting despite warnings from some Fed officials that they are inclined to do more to ensure that inflation remains in retreat.

Inflation on an annualized basis has eased from a 9.1% peak in July 2022 to just 3% last month, despite the national unemployment rate holding a near 50-year low 3.6%. The combination of ebbing inflation and tight labor market has been considered an anomaly by many economists, reflecting a longstanding theory that there is a tradeoff between jobs and holding prices steady. The Fed's own projections called for the unemployment rate to increase to 4.5%, meaning over one million people would have to lose their jobs to get prices under control.

"The economy is defying predictions that inflation would not fall absent of significant job destructions," said Lael Bainard, head of the National Economic Council, on July 12.

It is notable that major investment banks and forecasting agencies have slashed their perceived odds of a U.S. recession in recent weeks, with Goldman Sachs seeing just a 20% possibility of a significant downturn in the next 12 months.

Near 7:30 a.m. ET, the U.S. dollar index weakened 0.28% against a basket of foreign currencies to trade near 100.810 but failed to offer meaningful support for the West Texas Intermediate September contract despite their inverse relationship.

WTI September futures softened $0.83 to trade near $78.80 bbl, and the international crude benchmark Brent contract slipped to $82.75 bbl, down $0.91. Moving in the opposite direction, RBOB August futures on NYMEX added $0.0077 to $2.8610 gallon and ULSD futures gained to $2.7935 gallon, up $0.0159 so far on the session.

Wednesday's mixed move in the oil complex follows API's inventory report released late Tuesday afternoon, showing U.S. crude oil inventories unexpectedly increased by 1.319 million bbl last week contrary to calls for a 2.2 million bbl draw. Stocks at the Cushing tank farm in Oklahoma, the NYMEX delivery point for WTI futures, dropped 2.34 million bbl. It is notable that Cushing stocks were drawn down by 2.9 million bbl in the week prior -- the largest draw from the hub since October 2021. API data further showed gasoline inventory fell 1.043 million bbl during the week of July 21, missing an expected 1.7 million bbl drawdown. Distillate inventory increased 1.614 million bbl compared with an expected decline of 600,000 bbl.

Next, oil traders await the inventory report from the U.S. Energy Information Administration, scheduled for a 10:30 a.m. ET release.

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