By Barani Krishnan
Investing.com -- Crude prices fell a second day in a row on Wednesday as supportive U.S. inventory data was canceled out by Federal Reserve Chair Jerome Powell’s testimony to Congress, which continued to spook traders worried about the intensity of oncoming rate hikes.
U.S. crude inventories fell by 1.694 million barrels last week for their first weekly drop since December after 10 straight weeks of builds that added some 60M barrels to inventories, the Energy Information Administration, or EIA, said in its Weekly Petroleum Status Report.
Market attention, however, was more on Powell, where the Fed chair in a second day of testimony before Congress, indicated the central bank would if needed. raise rates higher than previously anticipated. The dollar hit a 15-week high on speculation that the March 22 rate decision of the Fed could result in a 50-basis point hike versus the 25-bp rise many had bet on before.
“The terminal rate is likely to be higher than we expected,” Powell said, referring to the point at which the Fed would stop rate hikes, a level traders were speculating to be as high as 5.75% versus the current 4.75% peak for U.S. interest rates.
New York-traded West Texas Intermediate, or WTI, settled at $76.66 per barrel, down 92 cents, or 1.2%, after Tuesday’s 3.6% slide. The two-day drop came after Monday’s close of above $80 for WTI, its first in three weeks.
London-traded Brent crude settled at $82.66, down 63 cents, or 0.8%. The global crude benchmark fell 3.4% in the previous session. Like WTI, Brent’s plunge came after a three-week high in its settlement on Monday, where it closed at above $86.
“Crude prices can’t shake off fears that the Fed is going to send the U.S. economy into a bad recession,” said Ed Moya, analyst at online trading platform OANDA.
“A small EIA crude oil inventory draw wasn’t enough of a catalyst to help oil prices stabilize,” added Moya. “The amount of crude demand uncertainty over the short-term is keeping oil prices heavy. WTI crude looks like it will be stuck between the mid-$70s and the low $80s until we have a better idea on what type of recession the Fed will trigger.”
The crude stockpile draw reported by the EIA was the first since the week ended Dec. 30 and came after 10 weeks of builds that coincided with seasonal maintenance and other disruptions at U.S. refineries leading to less processing of oil.
Industry analysts tracked by Investing.com had forecast a build of 0.395M barrels on average for the week ended March 3.
Refineries operated at 86% of their operable capacity last week, the EIA said. Typically, inventory runs at this time of the year are about 90% or more.
U.S. crude oil refinery inputs averaged 15.0M barrels per day last week, some 12,000 less than the previous week’s average.
Gasoline production decreased last week, averaging 9.6M barrels per day, and distillate fuel production fell as well, averaging 4.5M barrels daily.
On the gasoline inventory front, the EIA reported a draw of 1.134M barrels last week, versus the forecast decline of 1.863M and against the previous week's deficit of 0.847M. Automotive fuel gasoline is the No. 1 U.S. fuel product.
While gasoline inventories fell, distillate stockpiles rose for a third week in a row. Until late January, distillates, which are refined into heating oil, diesel for trucks, buses, trains, and ships, and fuel for jets, were the strongest component of the U.S. petroleum complex in terms of demand.
Distillate stockpiles rose by 0.138M versus the expected slide of 1.038M. In the previous week, distillates rose by 0.179M.