DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session little changed as the U.S. dollar posted the largest one-session decline of the year after the consumer price index showed inflation slowed across-the-board in October, reinforcing the view the Federal Reserve is likely done with a monetary tightening cycle.

The U.S. dollar index dropped back to the lowest settlement in 2-1/2 months at 103.907 on Tuesday, losing 1.6% against a basket of six major currencies after U.S. inflation fell below market expectations last month. U.S. consumer prices were virtually unchanged from the previous month but still increased 3.2% on an annualized basis. Although still well above the Federal Reserve's 2% target, inflationary pressure slowed significantly across all sectors of the economy.

Most importantly, the core consumer price index -- a measure that excludes food and energy prices considered to be a better indication of forward inflation -- dropped to the lowest level in two years.

Following the inflation report, markets took any potential Fed rate increase almost completely off the table and raised odds for four rate cuts next year, according to CME's FedWatch Tool.

Oil futures traded sideways earlier in the session after the International Energy Agency said market fundamentals could be less tight than previously estimated in the fourth quarter due to strong production gains outside the OPEC+ alliance. The softer outlook for the physical oil market reflects a recent pullback in oil prices that retreated in each of the past three weeks, sending the global crude benchmark Brent to its lowest trade in over three months last week.

"The abrupt sell-off came as market concerns shifted from supply risks to the global economy and oil demand. In addition, the front month paper market trade has moved to first quarter 2024 when markets appear more or less in surplus, adding to the downward pressure on prices," said IEA in its monthly Oil Market Report released Tuesday morning.

Paris-based agency lifted global supply growth by 200,000 bpd this year to 1.7 million bpd driven mainly by stronger-than-expected production gains in the United States and Brazil. Non-OPEC+ producers will again drive overall growth in 2024, projected at 1.6 million bpd.

Separately, oil traders await the release of the U.S. Energy Information Administration's inventory report delayed last week to Wednesday due to a system upgrade. The Washington-based analytical division will publish two weeks of statistics this week.

A consensus of analysts and traders surveyed by the Wall Street Journal reveals commercial crude stockpiles will build by 800,000 bbl for the week ended Nov. 10. Expectations range from a build of 2.5 million bbl to a draw of 2 million bbl. Gasoline inventories are expected to have risen 100,000 bbl, according to the survey, with estimates ranging from an increase of 2.2 million bbl to a decrease of 2.3 million bbl. Stocks of distillates, which are mostly diesel fuel, are expected to have declined 800,000 bbl with estimates ranging from a decrease of 2 million bbl to an increase of 1.5 million bbl. Refinery use likely edged up 0.1%.

The American Petroleum Institute will release its weekly inventory survey at 4:30 p.m. EST.

On the session, NYMEX December West Texas Intermediate futures settled unchanged at $78.26 bbl, and January WTI finished with a $0.09 bbl discount against the front-month contract. ICE January Brent futures slipped $0.05 to $82.47 bbl, while the next month February contract narrowed the discount to the prompt month to $0.26 bbl. NYMEX December RBOB futures retreated $0.0131 to $2.2228 gallon and NYMEX December ULSD futures softened $0.0022 to $2.8371 gallon.

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