DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange deepened losses during the afternoon session Wednesday as a bearish inventory report from the U.S. Energy Information Administration (EIA) was joined by a stronger U.S. dollar. It followed hawkish remarks by Federal Reserve Chairman Jerome Powell who pushed back against cutting interest rates in March.

The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at a 5% by 5.25% target range, delivering no surprise to the markets.

FOMC "does not expect it will be appropriate to reduce the target range for the fed funds rate until it has gained full confidence that inflation is moving sustainably toward a 2% target," according to the FOMC policy statement released this afternoon following the committee's two-day policy meeting.

However, Powell's comments during the news conference after the rate announcement signaled the Fed's reluctance to cut interest rates soon.

"We are looking for greater confidence that inflation is moving towards 2%. We need to see more good data. We had six months of good inflation data. The question is: Does it send us a true signal that we are in fact on a sustainable path towards 2%?" said Powell.

The economy finds itself at the crossroads of strong growth, a solid labor market and falling inflation -- a rare mixture of ingredients that have caused many economists to scratch their heads.

U.S. gross domestic product expanded at a 3.3% clip during the fourth quarter of 2023, driven mainly by strong consumer demand. The labor market, although showing some signs of rebalancing to pre-pandemic norms, added an average of 190,000 new jobs during the fourth quarter. Meanwhile, inflation has come down significantly to an average of 2.6% on an annualized basis, according to the latest Personal Consumption and Expenditure Index.

While Powell acknowledged progress with inflation, he cautioned against easing monetary policy too soon, seemingly dismissing the likelihood of a March rate cut.

Following Powell's remarks, the U.S. dollar index rallied against a basket of foreign currencies, although still ending weaker at 103.089.

Front-month West Texas Intermediate settled near a session low at $75.85 per barrel (bbl), down $1.97.

The international crude benchmark Brent contract for March delivery expired $1.16 lower at $81.71 bbl, with the next-month April contract expanding its discount against the expired contract to $1.16 bbl. NYMEX February RBOB futures dropped back $0.0774 gallon to expire at $2.1833 gallon, with the next-month contract finishing the session at $2.2312 gallon. Moving in the opposite direction, NYMEX February ULSD contract firmed $0.0014 to settle at $2.8082 gallon, with the March contract edging $0.0086 higher at $2.7852 gallon.

Wednesday's inventory report released midmorning by the EIA was mostly bearish for the oil complex, showing commercial crude oil inventories unexpectedly increased last week as crude production rebounded and refinery run rates continued lower following disruptions from an Arctic blast earlier this month.

Refinery runs turned sharply lower during the week ended Jan. 26, falling 2.6% to the lowest run rate since December 2022 at 82.9% of capacity. Domestic refineries processed 428,000 barrels per day (bpd) less crude less week with crude inputs at 14.848 million bpd. Gulf Coast refineries decreased crude throughputs for the second straight week, averaging 7.758 million bpd last week which likely reflects an earlier start to the spring maintenance season.

Domestic oil production, meanwhile, rebounded much quicker than initially expected, with operators recovering 700,000 bpd of shut-in crude from the prior week to lift output to 13 million bpd.

Despite the turn lower in refinery runs amid maintenance, gasoline stocks continued to build amid weakness in domestic demand. Gasoline supplied to the U.S. market, a measure of demand, recovered 264,000 bpd from the prior week to 8.144 million bpd. Gasoline stockpiles increased 1.2 million bbl to 254.1 million bbl compared to expectations for a 1.4 million bbl build. Distillate inventories decreased 2.5 million bbl during the week ended Jan. 26 to 130.8 million bbl -- roughly 4% below the five-year average. Implied demand for middle distillates stalled near a depressed level of 3.757 million bpd.

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