DTN Oil

WASHINGTON (DTN) -- While ULSD futures declined, West Texas Intermediate and the gasoline contract on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session with modest gains that were limited by a selloff in the U.S. equity market as investors reassessed comments from U.S. Federal Reserve Chairman Jerome Powell as more hawkish, as Powell on Wednesday indicated the central bank is prepared to introduce more aggressive interest rate hikes to quell inflation but risk tilting the U.S. economy into recession.

Stocks on Wall Street suffered their worst day of the year on Thursday, sending Dow Jones Industrials as much as 1,315 points or 3.9% lower and S&P 500 down 5.9%. Thursday's selloff appears to have been triggered by concerns over potential recession amid an aggressive path of interest rate hikes by the Federal Reserve after the central bank raised interest rates by 50 basis points on Wednesday.

"What's happening right now is exactly what the Federal Reserve wants to happen. They want a weaker stock market. They want higher bond yields," said former New York Federal Reserve President Bill Dudley.

Faced with a red-hot jobs market and very high inflation, Powell has conceded that financial conditions must be tightened, meaning lower stock market valuations and more expensive credit for companies with weak balance sheets.

On the economic data front, initial jobless claims for the final week of April jumped to a more than two-month high 200,000 but still remained consistent with tightening labor market conditions, according to economists. The Labor Department's Job Openings and Labor Turnover Survey this week showed there were a record 11.5 million job openings on the last day of March. Meantime, a series high 4.5 million Americans quit their jobs in March, with data dating back to 2000. The quits rate, a measure of voluntary job leavers as a share of total employment, rose slightly to 3%.

Next, investors will turn their focus to U.S. Non-Farm Employment Report for April to be released 8:30 AM ET Friday that is expected to show 391,000 new jobs were created last month compared with 431,000 in March. Should the data disappoint expectations, this could trigger further selloff across equity markets and put pressure on the oil complex in closing out the week.

Underlining Thursday's rally in oil markets, Organization of the Petroleum Exporting Countries and Russia-led partners agreed on a planned production increase of 432,000 barrels per day (bpd) for June, sticking to a Moscow-backed agreement reached in July 2021 to return production shut-in during the early days of the pandemic in small, incremental steps. The decision comes despite repeated calls in recent months from the United States and other oil-consuming nations for the coalition to tap into remaining spare capacity in Saudi Arabia and the United Arab Emirates -- two producers that can still rapidly increase output to offset a supply deficit on the global market.

Worsening the supply deficit, European Union on Wednesday proposed a full embargo on Russian crude imports within the next six months that should further reduce global oil supplies and send prices higher.

Russian crude production has already fallen more than 1 million bpd since the invasion of Ukraine on Feb. 24 in response to reduced demand for its oil overseas and in the domestic market. Of the 10.1 million bpd of crude oil that Russia produced in 2021, it exported more than 45% or 4.7 million bpd. The majority of Russia's crude oil and condensate exports, nearly half of Russia's total exports, are typically sent to Europe. For Russia, it's highly unlikely demand from China and India, Asia's largest importers, could replace the lost export demand from Europe.

At settlement, NYMEX June WTI futures advanced $0.45 per barrel (bbl) to $108.26 bbl, and ICE July Brent crude futures gained $0.76 to $110.90 bbl. NYMEX June RBOB edged up 0.64 cents to $3.6587 gallon, and the June ULSD contract declined 15.57 cents to $4.0413 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com