WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange held lower in pre-inventory trade Wednesday despite American Petroleum Institute data showing U.S. crude oil stockpiles fell by a larger-than-expected margin last week, accompanied with a steep drawdown in petroleum product inventories in what could be a sign of a seasonal rebound in fuel demand.
U.S. crude inventories slumped by 4.3 million barrels (bbl) in the final week of March, according to the API data released late Tuesday, marking the second weekly decline for U.S. oil inventories. Analysts forecast a more modest decline of 1.5 million bbl. Additionally, gasoline stockpiles tumbled 3.970 million bbl week-over-week, more than twice the calls for a 1.2-million-bbl drawdown. API data also showed distillate inventory toppled 3.693 million bbl, far surpassing an expected decline of 500,000 bbl. Should the EIA report confirm the steep drawdowns, this could be a sign of strengthening demand ahead of the Spring-Summer driving season. U.S. gasoline demand is already on par with 2022 levels but still 4.3% below 2019 levels for the seasonal period.
Inventory drawdowns in the U.S. came just as the group of OPEC+ producers decided to slash oil output by 1.66 million barrels per day (bpd) beginning next month and keep cuts through the end of the year. The output cuts add to a reduction of 2 million bpd agreed by the group in October. Taken together, the output cuts account for about 3% of global oil production taken off the market in just seven months. In a note released this week, Fitch Ratings said the cuts should support prices in the short term, leading to an increased likelihood that the market could switch into deficit in 2H23. "We believe that the market was in a moderate surplus in 1Q23 with OECD commercial inventories increasing by 32 million tons in January and a further 10 million tons in February. The decision on production cuts increases the likelihood of the market switching into deficit this year as demand will increase by 2MMbpd in 2023, mostly because of China reopening, which will account for about half of demand growth," said Fitch Ratings.
In financial markets, the U.S. Dollar Index bounced higher from a two-month low settlement of 101.145, gaining 0.10% against the basket of foreign currencies after federal data showed U.S. job openings fell below 10 million in February -- the lowest level in over two years.
Further details from the JOLTs report showed available positions totaling 9.93 million, a drop of 632,000 from January's downwardly revised number. Although the survey has been widely criticized over its methodology and data accuracy, it still could offer some clues on the overall direction in the labor market. For instance, February's openings were below a record 12 million reached last March, according to revised 2022 data, but still well above 7 million openings in February 2020 ahead of the pandemic.
As the economy slows, it is safe to assume that businesses will cut job openings and employees will be less inclined to quit in search of a better position or higher pay. This should cool down inflationary pressures within the economy that the Federal Reserve has been targeting with rising interest rates for over a year now. Next, investors will turn their focus to the Non-Farm Employment Report for March scheduled for 8:30 a.m. EDT release Friday. Investors anticipate the economy added 240,000 new jobs last month, down from February 311,000, but still well above the pre-pandemic average level.
Near 7:30 a.m. EDT, West Texas Intermediate futures for May delivery traded little changed near $80.71 bbl, and international benchmark Brent softened to $84.92 bbl. NYMEX May RBOB futures advanced $0.0166 to $2.7537 gallon, while May ULSD futures gained to $2.6706 gallon.
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