Oil Tumbles after Fed Minutes Confirm Aggressive Tightening

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading lower late Wednesday after giving back earlier gains. Selling pressure hit the markets shortly after the release of the Fed minutes at 19:00 GMT, but some say it may have been a delayed reaction to an unexpected rise in U.S. crude oil stockpiles last week reported earlier in the session.

At 21:18 GMT, April WTI crude oil futures are trading $88.49, down $1.72 or -1.91% and April Brent crude oil is at $91.40, down $1.88 or -2.02%. The United States Oil Fund ETF (USO) settled at $63.51, down $0.77 or -1.20%.

Minutes Show Fed Ready to Hike Rates, Shrink Balance Sheet Soon

Federal Reserve officials set plans in motion at their most recent meeting to begin raising interest rates and shed the trillions of dollars in bonds on the central bank balance sheet, according to minutes released Wednesday, CNBC reported.

Some officials at the meeting expressed concerns over financial stability, saying that loose monetary policy could be posing a substantial risk. They indicated that interest rate hikes likely are on the way soon, and they said the unwind of the bond portfolio could be aggressive.

“Participants observed that, in light of the current high level of the Federal Reserve’s securities holdings, a significant reduction in the size of the balance sheet would likely be appropriate,” the meeting summary stated.

US Crude Stockpiles Rise Despite Cushing Draw, Record Fuel Demand – EIA

U.S. crude oil stockpiles rose unexpectedly last week, even as inventories at the key Cushing hub dropped to their lowest level since 2018, the Energy Information Administration (EIA) said on Wednesday.

Fuel stocks fell and demand surpassed the previous week’s record, with total product supplied over four weeks averaging 22.1 million barrels per day, according to the EIA. The U.S. economy has recovered rapidly from the coronavirus-induced recession, boosting demand for fuels.

Crude inventories rose by 1.1 million barrels in the week to February 11 to 411.5 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.6 million-barrel drop.

However, crude stocks at the Cushing, Oklahoma, storage hub fell by 1.9 million barrels to 25.8 million barrels, their lowest since September 2018.

Refinery crude runs fell by 675,000 bpd for the week, the EIA said. Refinery utilization rates fell by 2.9 percentage points to 85.3% of capacity as those facilities start to move into maintenance season.

U.S. gasoline stocks fell by 1.3 million barrels, compared with analysts’ expectations in a Reuters poll for a 550,000-barrell rise.

Distillate stockpiles, which include diesel and heating oil, fell by 1.6 million barrels.

Short-Term Outlook

We’re pinning the late session sell-off on the Fed minutes unless we discover another reason after the close. This is because traders reacted similarly in late January when traders started to discuss the possibility of quicker than expected interest-rate hikes by the Fed starting in March. Today’s Fed minutes confirmed this assessment, spooking crude investors into reducing exposure.