Oil Futures Pull Back Ahead of EIA Data, Fed Announcement

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved lower early Wednesday ahead of weekly inventory data from the Energy Information Administration midmorning, and the afternoon rate decision by the Federal Reserve, while the October West Texas Intermediate futures contract expires at the close.

The Federal Open Market Committee is overwhelmingly expected to maintain the federal funds rate in a 5.25% by 5.5% target range, with CME Group's FedWatch Tool showing investors increasingly believe central bank officials have finished hiking the key overnight bank borrowing rate. The FedWatch Tool shows investors anticipate a 25-point rate cut in June 2024.

The increasing probability that the Fed is done increasing interest rates picked up pace as the 146,000-member United Auto Workers began a strike action against the Big Three automakers in Detroit -- General Motors, Ford, and Stellantis, now in its sixth day. The UAW strike, currently targeting the most profitable plant of each automaker, will expand midday Friday (9/22) without substantial progress in negotiations, said UAW President Shawn Fain.

An extended strike would cost the U.S. economy billions, with a widespread deleterious effect not only impacting carmakers, but also the numerous companies in the supply chain supporting vehicle manufacturing. A slowing economy would help tamp down inflation, which accelerated to 3.7% year-on-year in August, according to the Bureau of Labor Statistics' consumer price index, helping the Fed achieve a "soft landing" for the U.S. economy following its aggressive rate tightening cycle.

Traders will scrutinize the language released by the Fed at 2 p.m. ET in announcing their rate decision and in comments by Fed Chairman Jerome Powell. FOMC will also release its once-a-quarter Summary of Economic Projections, showing Fed officials' expectations for U.S. Gross Domestic Product, unemployment, and inflation in the coming quarters.

June's projections showed median expectations for annual U.S. GDP growth for the U.S. economy this year at 1%, and for 1.1% annualized growth in 2024. Since then, the Bureau of Economic Analysis estimated U.S. GDP annualized growth for the second quarter at 2.1%, a slight gain from the 2% growth rate for the first three months of 2023. The Federal Reserve Bank of Atlanta's GDPNow forecasting model calls for third quarter annualized GDP growth of 4.9%, with the acceleration in growth coming alongside ramped-up inflation pressure.

Energy costs were the driving factor in pushing inflation higher in August, with the Automobile Association of America reporting the U.S. average price for regular gasoline at $3.875 Wednesday morning, easing from Monday's $3.881 gallon 11-month high, while nationwide diesel fuel prices at retail outlets at a $4.585 gallon more than seven-month high.

EIA at 10:30 AM ET will release statistics showing the change in oil inventories during the week ended Sept. 15, with the American Petroleum Institute late Tuesday afternoon reporting a 5.25 million bbl drawdown in U.S. commercial crude stocks that was well above market consensus for a 1 million bbl draw. API also reported a weekly gasoline build of 732,000 bbl which was just above expectations for a 500,000-bbl increase, and that distillate inventory was drawn down 258,000 bbl compared with estimates for a 200,000 bbl decline.

NYMEX October WTI futures briefly slipped below $90 bbl overnight for the first time this week, trading at $90.65 bbl near 7:30 AM ET, down $0.55, with the November contract trading at a $0.70 discount to the expiring contract. ICE November Brent is down about $0.60 to near $93.75 bbl.

WTI and Brent are pulling back from 10-month highs on their spot continuous charts of $93.74 and $95.96 bbl, respectively, traded on Tuesday. Crude futures rallied in September following separate but timed announcements by Saudi Arabia and Russia earlier in the month that 1.3 million bpd in supply cuts would continue through year's end, reducing supply availability. The International Energy Agency expects those cuts to cause a 1.2 million bpd global supply shortfall.

NYMEX October ULSD futures were down about $0.04 at $3.3375 gallon, and October RBOB futures were lower for a fourth day, falling $0.0205 to $2.6375 gallon.

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

Brian Milne