DTN Oil

WASHINGTON (DTN) -- Erasing midmorning gains, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the first session of November lower after inventory data showed U.S. commercial crude stockpiles increased for a second consecutive week amid record-high oil production. A continued rally in the U.S. dollar following the decision from the Federal Open Market Committee to hold interest rates steady at a 22-year high further pressured oil prices.

The FOMC left the federal funds rate unchanged at a 5.25%-5.50% target range for the second meeting on Wednesday, in a move that was widely expected by the markets. "In determining the extent of additional policy firming that may be appropriate, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," read the FOMC policy statement.

In a post-decision conference, the Fed's Chairman Jerome Powell noted that the committee is "not confident policy is sufficiently restrictive to return inflation to its long-term 2% target," leaving the door open for another rate hike before the end of the year. Powell stressed, "The question we are asking is: Should we hike more?" The Fed's decision to hold rates steady follows a string of unexpectedly strong macroeconomic data for the third quarter that risks a second wave of inflation. The economy grew at the fastest pace in over two years over the recent three months, the labor market remains tight despite signs of rebalancing between supply, and demand for workers and consumer spending continues to surprise to the upside.

For the oil markets, it paints a mixed picture for fuel consumption where gasoline and distillate demand has been softer than economic indicators might suggest. The U.S. Energy Information Administration reported Wednesday morning gasoline product supplied to the U.S. market -- a measure of demand -- fell for the second week through Oct. 27, averaging just 8.697 million barrels per day (bpd) after plunging to a 25-year low 8 million bpd at the start of the month. Over the past four weeks, gasoline consumption hovered around 8.8 million bpd, some 305,000 bpd or 4% below the five-year seasonal average.

Further details of the EIA's report showed commercial crude stocks increased by 772,992 barrels (bbl) in the reviewed week to 421.9 million bbl, slightly above the consensus for a 500,000-bbl gain. Oil stored at Cushing, Oklahoma, the delivery point for West Texas Intermediate, rose to 21.5 million bbl from 21.2 million bbl seen in the previous week. U.S. crude-oil production, meanwhile, remained unchanged at a record-high 13.2 million bpd for the third consecutive week, topping the previous weekly high of 13.1 million bpd set during the week-ended March 13, 2020.

At settlement, West Texas Intermediate December futures on the NYMEX declined $0.58 per bbl to $80.44 per bbl, while the new front-month Brent contract for January on ICE softened $0.39 per bbl to $84.63 per bbl. Moving in the opposite direction, NYMEX December ULSD futures added $0.0515 to $2.9615 per gallon, with the December RBOB contract declining $0.0318 to $2.1855 per gallon.

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