WTI Falls to Nine-Week Low on USD Rally Ahead of Inventory Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude traded on the Intercontinental Exchange moved mixed during Tuesday's afternoon session. The West Texas Intermediate (WTI) contract for December retreated below support at the October low of $81.50 per barrel (bbl) as the U.S. dollar rallied, erasing Monday's losses ahead of the Federal Open Market Committee's (FOMC) rate announcement Wednesday afternoon.

WTI futures also come under selling pressure on expectations U.S. commercial crude oil inventories increased again last week. WTI fell $1.29 in the session to its lowest settlement since late August at $81.02 bbl. The U.S. dollar index strengthened 0.5% to a 106.494 nearly four-week high settlement.

A consensus of analysts and traders surveyed by the Wall Street Journal revealed U.S. commercial crude oil supplies likely increased by 500,000 bbl during the week ending Oct. 27, following a 1.4 million bbl build reported in the previous week. At 421.1 million bbl, U.S. crude inventories stand about 5% below the seasonal five-year average.

Gasoline inventories are expected to have decreased by 500,000 bbl in the reviewed week, while stocks of distillates, which are mostly diesel fuel, are seen to have been drawn down by 1.9 million bbl. Refinery use is likely to increase 0.3% from the previous week.

The American Petroleum Institute will release its inventory survey at 4:30 p.m. EDT Tuesday, followed by official data from the U.S. Energy Informational Administration on Wednesday morning.

In financial markets, investors await the rate decision from the FOMC that concludes its two-day meeting at 2 p.m. EDT Wednesday, followed by a news conference by Fed Chairman Jerome Powell at 2:30 p.m. Market consensus heavily leans towards no change in the federal funds rate, currently at a 22-year-high target range between 5% and 5.25%, by FOMC either on Wednesday or at its Dec. 13 meeting, according to CME's FedWatch Tool. As such, markets are more likely to react to comments from Powell about the outlook for monetary policy.

This week's FOMC meeting is taking place against strong macroeconomic data for the United States. Third-quarter U.S. gross domestic product has more than doubled the second quarter's annual growth rate with a 4.9% expansion. With growth outpacing consensus, potentially re-inflating inflation during the fourth quarter, some central bank officials have kept the door open for another rate hike before the end of the year.

Earlier in the session, the U.S. Dollar Index came under mild selling pressure after Eurozone inflation fell more than expected in October, down 1.4% to a 2.9% annualized rate, according to data published by Eurostat. The decline in headline inflation was mainly attributed to a retreat in energy and food prices along with prices for services and non-energy industrial goods.

However, easing inflation mostly came on the back of deteriorating economic growth across the Eurozone, falling to a negative 0.1% for the third quarter. Europe's largest economy, Germany, recorded a negative growth figure for the second consecutive quarter, meaning its economy is now in a technical recession. A combination of easing inflation and slowing growth might suggest the European Central Bank's tough medicine of tight monetary policy finally produced its desired effect. Economists expect Eurozone inflation and business activity will slow further in the coming months due to the delayed impact of rate hikes.

On the final day of October, Intercontinental Exchange's (ICE) December Brent futures expired flat, down $0.04 at $87.41 bbl, while the January contract widened its discount to the expiring contract with a $85.02 bbl settlement, down $1.33. NYMEX November Ultra Low Sulfur Diesel (ULSD) futures expired $0.0247 higher at $2.9910 gallon, with the next-month December contract settling the session at $2.91 gallon. NYMEX Reformulated Blendstock for Oxygenate Blending's (RBOB) November futures edged up $0.0027 to expire at $2.2227 gallon and the December RBOB contract settled the session at $2.2173 gallon.

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

Liubov Georges