Oil prices head higher a day after settling at lowest in nearly 6 months

By Myra P. Saefong and Joseph Adinolfi

EIA reports weekly fall in U.S. crude supplies, but product stockpiles rise

Oil futures moved higher Wednesday, a day after settling at their lowest price in nearly six months.

Oil traders weighed data from the Energy Information Administration that showed a second weekly decline in a row for commercial U.S. crude supplies, as well as a monthly report from major oil producers that left oil demand forecasts unchanged.

Traders also will look to the Federal Reserve's policy announcement later Wednesday for clues on the central bank's plan for interest rates, which impact the economy and demand for oil.

Price action

West Texas Intermediate crude for January CL00 CL.1 CLF24 delivery gained 74 cents, or 1.1%, to $69.35 a barrel on the New York Mercantile Exchange.February Brent crude BRNG24 BRN00, the global benchmark, gained 90 cents, or 1.2%, to $74.14 a barrel on ICE Futures Europe. On Tuesday, Brent and WTI oil marked the lowest front-month contract settlements since June 27, according to Dow Jones Market Data.January gasoline RBF24 gained 1.9% to $2.0179 a gallon, while January heating oil HOF24 rose by 1.3% to $2.5395 a gallon on Nymex.Natural gas for January delivery NGF24 increased by 0.9% to $2.331 per million British thermal units.

Supply data

The EIA on Wednesday reported that U.S. commercial crude inventories fell by 4.3 million barrels for the week ended Dec. 8.

On average, analysts polled by S&P Global Commodity Insights expected the report to show a decline of 2.7 million barrels. Separately, on Tuesday, the American Petroleum Institute reported a 2.35 million-barrel weekly fall in domestic crude stockpiles, according to sources.

The government agency's report of a 4.3 million-barrel draw in crude stocks largely reflects "ad valorem tax season considerations, as the Gulf Coast region continued to lead total stocks lower," while stocks at the Cushing, Okla. Nymex delivery hub continued to build, said Troy Vincent, senior market analyst at DTN.

At the end of the year, areas in the U.S. where significant volumes of crude oil are stored assess "ad valorem taxes," which means according to value, on end-of-year crude-oil inventories, according to the EIA.

The EIA report also revealed supply increases of 400,000 barrels for gasoline and 1.5 million barrels for distillates. The forecast called for supply gains of 3.4 million barrels for gasoline and 1.6 million barrels for distillates.

The reason for the small build in gasoline is largely due to the fact that "refinery runs have turned lower even as refiners should be emerging from maintenance," said Vincent, adding that U.S. refinery utilization moved down 90.2%.

This is "helping keep U.S. crude stocks in line with their 2017-2019 average for the seasonal period - which is important to consider given that crude prices were averaging around $8 below where they are now during those years," said Vincent.

Crude stocks at the Cushing, Okla., Nymex delivery hub rose by 1.2 million barrels last week, the EIA said.

Other market drivers

In a monthly oil report released Wednesday, the Organization of the Petroleum Exporting Countries left its expectations for global oil demand unchanged for this year and next.

It expects oil demand to grow by 2.5 million barrels a day this year, and grow by 2.2 million barrels a day in 2024.

The group of major oil producers expects China's economic rebound to be a major driver of oil demand growth next year.

Meanwhile, renewable energy has made headlines in recent days. In a monthly report released Tuesday, the EIA said it expects power from U.S. solar and wind generation to top power generation from coal next year.

And in Dubai, more than 190 governments at the United Nations climate conference, known as COP28, approved an agreement Wednesday calling for the world to transition away from fossil fuels.

Oil traders also look to Wednesday's announcement by the Federal Reserve as it concludes its two-day policy meeting.

Read: Fed will try to 'Keep calm and carry on' amidst talk of steep rate cuts and recession

Not only is the central bank expected to announce its latest decision on interest rates, but it's also due to release an updated policy statement, as well as fresh economic projections.

An U.S. inflation report released Tuesday helped drive oil prices lower, strategists said. Many expect Wednesday's Fed press conference could drive trading across markets.

Crude prices dropped sharply Tuesday, and the "sell-off accelerated after the release of the latest U.S. inflation numbers," said David Morrison, senior market analyst at Trade Nation.

-Myra P. Saefong -Joseph Adinolfi

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12-13-23 1118ET

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