DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session mixed, with West Texas Intermediate and Brent slipping on profit taking as the U.S. dollar strengthened, and RBOB and ULSD contracts advanced on weekly gains in consumption.

U.S. dollar settled above 105 for the first time in six months Thursday, strengthening 0.2% to 105.028 in index trading against a basket of foreign currencies on rising odds for an increase in the federal funds rate in the fourth quarter following a weekly decline in first-time unemployment claim filings.

U.S. Labor Department Thursday morning reported 216,000 new filings for unemployment insurance during the week-ended Sept. 2, down 13,000 from the previous week, and well below expectations for 238,000 first-time filings. The drop off in initial claims, which follows August job gains of 187,000 reported on Sept. 1, highlights the resiliency in the U.S. labor market. The strength in the U.S. workforce was reflected Wednesday with the Institute of Supply Management's services index that unexpectedly jumped to a 54.5 reading in August, with U.S. economic strength captured by the Atlanta Federal Reserve Bank's GDPNow indicator that forecasts a 5.6% annualized growth rate for the third quarter. That's an acceleration from the second quarter's 2.1% growth rate.

While the economic strength bolsters demand for crude and oil products, there are concerns inflation is again heating up amid the strong economy that increases the odds for the Federal Reserve to hike interest rates. CME Group's FedWatch Tool show investors continue to overwhelmingly, 93%, expect the Federal Open Market Committee to hold the federal funds rate at a 5.25% by 5.5% target range when they meet later this month on the Sept. 19 and Sept. 20. Yet expectations for FOMC to hike the rate when they meet on Nov. 1 increased from a probability of 41% on Wednesday to 43.4% on Thursday following the unemployment data, with 53.6% of investors betting the Fed will hold the key rate in its current range, down from about 56% the day prior.

The dollar's advance reflects the strong economy, which contrasts with weakness in the Eurozone and China, along with the potential for another rate hike later this year. The U.S. dollar has an inverse relationship with WTI futures which was in play today, overriding a larger-than-expected drawdown in commercial crude inventory amid an ongoing surge in U.S. crude exports.

Energy Information Administration late Thursday morning showed a 6.307 million bbl stock draw from commercial crude inventory to a 416.637 million bbl nine-month low during the week-ended Sept. 1, with inventory slipping below the comparable year ago period for the first time in 2023. Driving the draw were U.S. crude exports, up 404,000 bpd to a 4.932 million bpd five-week high last week.

After nine straight session gains that lifted WTI futures to a nearly 10-month high $88.08 bbl on the spot continuous chart on Wednesday, profit taking ensued. NYMEX October WTI futures settled down $0.67 at $86.87 bbl Thursday, and ICE November Brent fell $0.68 to $89.92 bbl following the first two sessions with settlements above $90 bbl since November 2022 this week.

Tight refining capacity was the backdrop for Thursday's trading that amplified demand gains for gasoline and distillate fuels during the final week of August. Gasoline supplied to the U.S. market surged 253,000 bpd to a 9.321 million bpd nine-week high during the week-ended Sept. 1, and distillate fuel demand gained 164,000 bpd to 3.866 million bpd.

EIA also reported gasoline inventory was drawn down 2.666 million bbl to a 214.746 million bbl 10-month low last week, on par with year ago, although 12.03 million bbl or 5.3% less than the five-year average. Distillate inventories increased for the fourth consecutive week, up 679,000 bbl to a nearly six-month 118.062 million bbl high, although stocks are 19.308 million bbl or 14% below the five-year average.

NYMEX October RBOB futures settled $0.0216 higher at $2.6230 gallon, and October ULSD futures advanced $0.0196 to $3.2123 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com