WTI futures trim losses on declining fuel supplies, FOMC meeting remains in focus

West Texas Intermediate crude trimmed its daily losses on Wednesday after a stronger-than-projected decline in US distillate fuel supplies, a closely watched category during the winter season, offset an unexpectedly large build in US crude oil inventories. Market players attention remained fixed at the outcome of FOMCs two-day meeting ending today, where policy makers will allegedly trim further Feds bond buying program.

On the New York Mercantile Exchange, WTI crude for delivery in March traded at $97.02 per barrel at 15:55 GMT, down 0.40% on the day. Prices shifted in a range between days high and low of $97.50 and $96.32 a barrel. The US benchmark added 1.8% on Tuesday but trimmed its weekly advance to little over 0.4% following Wednesdays retreat.

Meanwhile on the ICE, Brent futures for settlement in the same month rose by 0.21% to $107.64 per barrel after shifting in a daily range between $108.05 and $106.93 a barrel. The European benchmark added 0.7% on Tuesday but was down 0.3% on weekly basis by Wednesday. Brents premium to its US counterpart widened to $10.62 a barrel, down from $10 yesterday.

US crude drew support after the Energy Information Administration reported a much-larger-than-expected withdrawal in US distillate fuel inventories. Supplies, which include heating oil and diesel and are indicative for oil demand during the winter season, fell by 4.58 million barrels to 116.2 million in the seven days to January 24th and were well below the lower limit of the average range for this time of the year. The draw outstripped a projected decline of 2.55 million barrels, according to a weekly Bloomberg News survey of analysts. Motor gasoline inventories fell by 0.82 million barrels to 234.4 million last week, defying projections for a 1.6-million build, but were well above the average range.

The market however received pressure by a larger-than-expected build in US crude inventories. Stockpiles rose by 6.4 million barrels to 357.6 million and were in the upper half of the average range. Analysts had expected a jump of 2.25 million barrels. Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, increased to 41.8 million barrels, up from 41.6 a week earlier.

Refineries operated at 88.2% of their operable capacity, up from 86.5% in the preceding period. Both gasoline and distillate fuel production edged higher, averaging 9.2 million and 4.8 million barrels per day, respectively.

US crude oil imports rose by 504 barrels per day in the week ended January 24th, averaging 8.0 million bpd. Inbound shipments averaged 7.6 million bpd over the last four weeks, down 5.4% compared to the same period a year earlier.

Investors however awaited the outcome of FOMCs two-day meeting ending today where broad expectations called for a further $10-billion reduction in Feds monthly bond purchases. A confirmation would lift the US dollar, thus weighing on demand for dollar-denominated commodities, but it would also indicate US economic growth is sustainable, boosting demand prospects for oil.

The oil market gained support on Tuesday after a huge hike in interest rates in Turkey surprised investors, fueling hopes it would end a viscous cycle of selling in emerging markets and boost risk appetite.

Analysts at ANZ Bank said in a note, cited by CNBC: “Oil markets continue to oscillate between quantitative easing tapering, emerging market concerns, and physical supply/demand.”

The oil market also continued to draw support after rising US consumer confidence released on Tuesday offset earlier worse-than-expected durable goods data. The Conference Board’s consumer confidence index rose to a five-month high of 80.7 in January amid optimism about the economy and an improvement in the labor market. January’s reading outstripped expectations for a minor advance to 78.0 after December’s number received a downward revision to 77.5 from initially estimated at 78.1. Americans who said that jobs were plentiful and current business conditions were good were the most since August 2008.