DTN Oil

WASHINGTON, D.C. (DTN) -- While the Ultra Low Sulfur Diesel (ULSD) contract was an outlier, oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange reversed higher during the afternoon session Wednesday as investors parsed through minutes from the Federal Open Market Committee's (FOMC) Jan. 30-31 meeting for additional clues on the near-term path for monetary policy.

The minutes revealed most central bank officials wanted more evidence that inflation was moving sustainably lower toward their 2% target before pivoting towards a rate-cutting cycle. At the meeting, FOMC decided to leave the federal funds rate unchanged in a 5.25% to 5.5% target range but signaled they could soon start discussions on when the timing would be appropriate to cut the key interest rate.

"Most participants noted the risks of moving too quickly to ease the stance of policy," according to the minutes.

As an upside risk to both inflation and economic activity, participants noted momentum in aggregate demand may be stronger than currently assessed, especially considering surprisingly resilient consumer spending last year.

Since the end of January, investors grew increasingly skeptical over the early start of the rate-cutting cycle and bets for a March rate cut all but dissipated in favor of a June move. A pair of hotter-than-expected inflation reports have since unsettled the markets, showing prices paid on consumer and producer levels unexpectedly accelerated at the start of the year.

The core Consumer Price Index, which excludes the volatile prices of food and energy, rose at a faster-than-expected 0.4% last month, bringing the annual rate of inflation to 3.9%, well above the Fed's 2% target. Producer-level inflation data on Friday similarly topped expectations.

At last look, most investors still expect FOMC to make a 25-point cut in the federal funds rate at its June meeting, pushing back expectations for an earlier cut in the overnight bank borrowing rate, according to the CME FedWatch Tool.

Wednesday afternoon, oil traders also positioned ahead of the release of weekly inventory data in the United States, starting with the private survey from the American Petroleum Institute this afternoon, followed by the official report from the U.S. Energy Information Administration Thursday morning.

Consensus of analysts and traders surveyed by the Wall Street Journal reveal commercial crude oil stockpiles likely increased 3.2 million barrels (bbl) during the week ended Feb. 16 following an outsized 12 million bbl build reported in the prior week. If realized, this would mark the fourth consecutive weekly increase in nationwide oil stockpiles.

Gasoline and distillate fuel stocks are estimated to have fallen for the second straight week through Feb. 16, with stockpiles of gasoline seen to have declined 2.1 million bbl and distillate inventories to have drawn down by 1.4 million bbl. Refinery capacity utilization likely rose 0.8% from the previous week to 81.4%, according to the survey.

U.S. refinery run rates plunged to a near 10-month low of 80.6% as of Feb. 9 due to seasonal turnaround and unplanned refinery outages. The PADD 2 refinery run rate was 83.1% of capacity, down 12% from the beginning of the month, and PADD 3 refinery utilization averaged 79.7%, up 2.6%.

New front-month April West Texas Intermediate (WTI) futures on NYMEX clawed back earlier losses to settle the session $0.87 higher at $77.91 bbl after testing the 200-day moving average at $77.55 bbl. Lending some price support for the WTI contract, the U.S. dollar index softened against a basket of foreign currencies to settle at 103.912.

The international crude benchmark ICE April Brent futures contract settled above $83 bbl, advancing $0.69 bbl to $83.03 bbl on the session. NYMEX March RBOB futures added a modest $0.0086 to $2.2860 gallon, while NYMEX March ULSD futures eroded $0.0263 to $2.7052 gallon.

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