Oil prices pull back from 3-month highs with weekly U.S. crude supplies down less than expected

Price action

• West Texas Intermediate crude for September delivery
  CL.1,
  -0.87%
  fell 39 cents, or 0.5%, to $79.24 a barrel on the New York Mercantile Exchange.

• September Brent crude
  BRNU23,
  -0.72%,
  the global benchmark, was down 34 cents, or 0.4%, at $83.30 a barrel on ICE Futures Europe. October Brent
  BRN00,
  -0.68%

  BRNV23,
  -0.68%,
  the most actively traded contract, declined 32 cents, or 0.4%, to $82.93 a barrel.

• Back on Nymex, August gasoline
  RBQ23,
  +1.76%
  rose 1.9% to $2.9084 a gallon, while August heating oil
  HOQ23,
  +1.82%
  was up 2% at $2.8335 a gallon.

• August natural gas
  NGQ23,
  -2.64%
  fell 3.4% to $2.636 per million British thermal units ahead of the contract’s expiration at the end of Thursday’s session.

The Fed and other market drivers

Both WTI and Brent ended Tuesday at their highest since April 18, buoyed by expectations for a supply deficit in the second half of the year.

Given ongoing cuts by Saudi Arabia, and the Atlantic hurricane season, strength in the energy complex is likely to continue in the days and weeks ahead, said Tariq Zahir, managing member at Tyche Capital Advisors.

Still, upside for oil has been limited by fears of aggressive monetary tightening by global central banks that could spark a significant economic slowdown, though that has been tempered by expectations interest rate hikes may be near an end.

“Whether assets like oil, gold and equities can continue marching higher will hinge on the rhetoric we hear from the FOMC,” said Tim Waterer, chief market analyst at KCM Trade.

“If financial markets come out of the Fed event thinking we are at the interest rate peak, then further gains are on the cards,” he said in market commentary. “If not, a pullback could be in order.”

The Fed on Wednesday, a half-hour before the settlement for Nymex oil futures, is widely expected to deliver a quarter percentage point rate hike that many investors expect to be the last of a cycle that began in March 2022. A press conference from Fed Chairman Jerome Powell will follow.

Zahir said Tyche Capital Advisors expects a “hawkish tone” and that a “higher rates for longer guidance will be given.”

Supply data

The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories fell by 600,000 barrels for the week ended July 21.

On average, analysts polled by S&P Global Commodity Insights expected the report to show a decrease of 4.4 million barrels. The American Petroleum Institute late Tuesday reported a weekly increase of 1.3 million barrels, according to a source citing the data.

The EIA report also revealed supply falls of 800,000 barrels for gasoline and 200,000 barrels for distillates for the week. Analysts had forecast weekly inventory declines of 2 million barrels for gasoline and 2.3 million for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 2.6 million barrels for the week, the EIA said, while total domestic petroleum production fell 100,000 barrels to 12.2 million barrels per day.