DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined for the third consecutive session on Wednesday, sending the U.S. crude benchmark to the lowest settlement in four weeks under pressure from U.S. dollar strength spurred by weak macroeconomic data in the Eurozone and another weekly increase in domestic crude oil production.

The U.S. dollar hit an 11-week high 103.905 on an intraday basis Wednesday and settled lower at 103.333, a near match with a key retracement point at 103.330 as investors booked profits ahead of the start of the annual Economic Symposium in Jackson Hole, Wyoming, on Thursday.

Federal Reserve Chairman Jerome Powell will deliver the symposium's keynote address on Friday that will likely send a "higher-for-longer" message to markets after lifting the federal funds rate to a more than decade high. At their July 25-26 meeting, the Federal Open Market Committee raised the key overnight borrowing rate between banks to a 5.25% to 5.5% target range, while signaling it could push the rate higher if inflation remains high.

Greenback's strength also follows another dismal batch of macroeconomic data in the Eurozone, where business activity contracted at an accelerated pace last month with the region's downturn spreading further from manufacturing to services. At 47.0, the seasonally adjusted Purchasing Managers Index for the Eurozone fell last month to the lowest level since November 2020, with both components of the index, manufacturing and services, sliding into contraction.

"The service sector of the eurozone is unfortunately showing signs of turning down to match the poor performance of manufacturing," commented Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

The data is consistent with Eurozone Gross Domestic Product falling 0.2% in the third quarter.

Interestingly, the fall in economic activity coincided with rising wages across the Eurozone, leading to a so-called "stagflation trap" that European Central Bank President Christine Lagarde sounded the alarm about in recent weeks.

Wednesday's inventory report from the U.S. Energy Information Administration was mixed, showing a larger-than-estimated drop in U.S. crude oil inventories accompanied by another weekly jump in domestic oil production.

U.S. oil producers raised output by another 100,000-bpd last week to 12.8 million bpd -- the highest level since March 2020, and 300,000 bpd shy of the all-time high reached before the COVID-19 lockdown forced producers to shut-in a large swath of wells as demand plummeted. On an annualized basis, U.S. oil production is now forecast to break through the pre-COVID record to average 12.8 million bpd this year and 13.1 million bpd in 2024.

Despite higher output, commercial oil inventories still declined by a larger-than-expected 6.1 million bbl last week to 433.5 million bbl and are now 2% below the five-year average, according to EIA data. Oil stored at Cushing, Oklahoma, the delivery point for West Texas Intermediate contract, accounted for 3.133 million bbl of the national drawdown, with stocks at the important hub declining to a 30.669 million bbl more than eight-month low.

In the gasoline complex, the EIA report revealed demand for the transportation fuel remained below 9 million bpd for the sixth out of the last seven weeks despite the peak season for driving during the summer. U.S. commercial gasoline stockpiles increased 1.5 million bbl from the previous week to 217.6 million bpd, bringing inventories to about 5% below the five-year average.

On the session, NYMEX WTI October futures declined $0.75 to settle at $78.89 bbl, and the international crude benchmark Brent contract eroded to $83.21 bbl, down $0.82. NYMEX ULSD futures fell back $0.0097 to $3.1291 gallon and NYMEX RBOB September futures weakened $0.0203 to $2.7688 gallon.

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