U.S. crude inventories drop more than expected, Fed minutes in focus

Oil continued to trade lower on Wednesday despite a bullish EIA crude oil inventories report as market players continued to focus FOMCs July meeting protocols. Crude inventories fell and gasoline stockpiles decreased above expectations, while distillate fuel reserves gained.

On the New York Mercantile Exchange, WTI crude for October delivery traded at $104.61 per barrel at 15:02 GMT, down 0.48% on the day. Prices held in range between days high at $105.35 and low of $104.35 per barrel, the lowest since August 9. Futures settled at $105.11 on Tuesday, the lowest since August 8, extending current week’s decline to 2.8%.

Meanwhile on the ICE, Brent crude for October delivery traded at $109.96 per barrel at 15:02 GMT, trimming its daily decline to 0.18%. Futures shifted between days high and low of $110.26 and $109.24 per barrel respectively. The European benchmark rose 0.45% on Tuesday but extended its weekly decline to 0.4%.

Oil prices remained pressured with the Fed minutes coming later in the day, despite EIAs upbeat report. The government agency said that during the week ending August 16 U.S. commercial crude oil inventories decreased by 1.4 million barrels, or 0.4%, to 359.1 million, the lowest since September. This was generally in line with analysts expectations for a 1.5 million barrels drop, according to a Bloomberg survey. Refineries operated at 91.0% of their operable capacity last week, 1.6% above the preceding weeks percentage and confounding expectations for a 0.5% contraction.

The Energy Information Administration also reported that gasoline and distillate fuel output increased, averaging 9.4 million and 4.9 million barrels per day respectively. U.S. gasoline stockpiles fell by 4.0 million barrels, or 1.8%, last week and remained in the upper half of the average range for this time of the year, totaling 218.4 million barrels. Analysts expected a 1.5 million drop. Distillate fuel reserves increased by 0.9 million barrels to 129.4 million and are near the lower limit of the average range. According to Bloombergs survey, a 1 million gain was expected.

Oil prices were briefly supported earlier in the day by upbeat U.S. construction data. The National Association of Realtors reported that Existing Home Sales in July rose by 6.5% to 5.39 million, up from 5.08 million units sold in June. Last month’s reading also surpassed analysts’ expectations for a surge by 1.6% to 5.15 million homes sold, fueling optimism for a recovering U.S. economy, which boosts demand prospects in the worlds biggest consumer.

Adam Wise, managing director at Manulife Asset Management in Boston, said for Bloomberg: “With inventories of crude coming in near expectations, the market is able to return its focus on the Fed. We’re waiting for the FOMC minutes later today and hoping to get a sign of how aggressive they will be in cutting the stimulus.”

Oil prices remained pressured amid expectations that Wednesday’s Fed minutes from FOMC’s July meeting might indicate that the central bank will begin tapering its $85 billion bond purchasing program in September. Meanwhile, central bankers and policy makers are meeting tomorrow at Jackson Hole, Wyoming, to discuss monetary policy. Dollar-denominated commodities have largely been tracking shifting expectations for an earlier-than-expected deceleration of the central bank’s bond purchases, which have been pushing up commodities prices.

According to a Bloomberg survey of economists, 65% of the participants expected that the Federal Reserve will start trimming its $85 billion per month bond purchases after FOMC’s September meeting.

Market players will also be keeping a close eye on the remaining U.S. and China economic data coming later this week to gauge economies strength and oils demand prospects. On Thursday, last week’s Initial Jobless Claims likely rose by 10 000 to 330 000, while the Markit Flash U.S. Manufacturing PMI for August is projected to have advanced to 54.0 from July’s 53.7. On Friday, July’s New Home Sales are expected to have declined to 0.490 million houses sold, down from 0.497 million in the preceding month.

Also on Thursday, the Chinese HSBC Manufacturing PMI, prepared by HSBC Holdings Plc and Markit Economics, is expected to have surged to 48.3 in August from a 47.7 reading in July. Flash figures are released approximately six business days prior to the end of the month. The final reading, as well as the government statistics, will be released on September 1. Monthly Report on China’s Non-manufacturing Purchasing Managers Index is due at September 3.