DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent traded on the Intercontinental Exchange plunged 2% or more on Wednesday, with both crude benchmarks retreating from their highest trading levels in 15 weeks as investors balanced renewed concerns over the U.S. economy following a credit downgrade from Fitch Ratings against bullish inventory report from the U.S. Energy Information Administration.

Details of the report revealed U.S. commercial crude oil inventories plummeted 17.05 million bbl during the week-ended July 28, pressing nationwide stockpiles to 1% below the five-year average. This marked the third consecutive weekly drawdown from commercial oil stockpiles and the largest drop so far this year. The outsized draw was largely due to a surge in oil exports that spiked above 5 million bpd in the final week of July, an increase of 692,000 bpd or 15% from the previous week. For context, U.S. exported an average of 3.512 million bpd during the comparable week a year ago.

As part of an OPEC+ agreement, both Saudi Arabia and Russia have sharply cut their oil exports this summer to meet pledged production quotas, prompting demand pull for oil barrels outside of the producer coalition.

OPEC+ has implemented some 3.7 million bpd in output reduction since October, with Saudis and Russians shouldering the lion's share of those curbs. Additionally, Riyadh announced a unilateral 1 million bpd production cut for July and August, with expectations growing for the Saudis to extend their production cuts into at least September to further tighten the physical market through the rest of the year. Traders now await news from the OPEC+ Joint Ministerial Monitoring Committee, chaired by Saudi Arabia and Russia, that will meet on Thursday to review production policy.

Countering EIA's bullish inventory report, rallying U.S. dollar and renewed concerns over the U.S. economy might have weighed on the oil complex midweek. Fitch Ratings downgraded the long-term credit rating for the U.S. economy from its highest rating of AAA to AA+. The agency cited unsustainable debt levels and a narrowly avoided default two months ago. The downgrade drew an angry response from the Biden administration, with the Treasury Department calling it "arbitrary" after the White House and Congress averted a debt default back in May.

In response to the downgrade, U.S. equities fell sharply in afternoon trading Wednesday, sending Dow Jones Industrials as much as 348 points lower and S&P 500 registered a 1.38% drop. U.S. dollar extended a rally to settle near a three-week high 102.389, up 0.3% against a basket of foreign currencies.

West Texas Intermediate September futures on NYMEX dropped back $1.88 bbl to settle the session at $79.49 bbl, retreating from a $82.43 15-week high traded overnight. International crude benchmark Brent contract for October delivery pulled back $1.71 to settle at $83.20 bbl, reversing from a trade at a $85.99 15-week high overnight. NYMEX September RBOB futures moved $0.0972 lower to $2.7758 gallon, while the September ULSD contract on NYMEX softened $0.0191 from a six-month high $3.0874 reached overnight to settle at $3.0043 gallon.

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