DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures closest to delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange settled both Friday's session and the week mixed, pulling back from early-week highs on diverging demand signals while reassessing the overall impact of drone attacks on Russian refineries that accentuated a rally during the second week of March into this week.

Traders also digested a dovish turn by the Federal Reserve, appearing unfettered in their intent to cut interest rates despite hotter-than-expected inflation in January and February amid a strong U.S. economy.

"After years of easy monetary policy and fiscal stimulus, economic conditions tightened at the fastest rate in 40 years, and yet there was not a recession. The U.S. economy has proven more resilient than expected, and markets are predicting rate cuts," said David Solomon, chairman and CEO of Goldman Sachs, in a letter to shareholders.

Solomon thinks inflation may prove "stickier than many anticipate," an expectation seeming to gain traction in the broader market ahead of March 20's rate decision by the Federal Open Market Committee (FOMC) judging by the pop in the U.S. dollar index. FOMC maintained the federal funds rate in a 5.25% to 5.5% target range, but despite projecting stronger than previously projected economic growth and inflation pressures, appear on course to cut the key bank overnight borrowing rate three times in 2024 by a total of 0.75%.

The U.S. dollar in index trading against a basket of foreign currencies rallied to a 104.200 three-week high intrasession Friday while strengthening 0.763 or 0.7% from last Friday with a 104.177 settlement. The stronger dollar weighed on West Texas Intermediate (WTI) futures with the front-month contract settling down $0.44 on the session and $0.41 on the week at $80.63 per barrel (bbl).

WTI futures and Brent, the international crude benchmark, rallied to 4 1/2-month highs on their spot continuous charts at $83.85 and $87.70 bbl, respectively, early in the week on projections for a tightening world oil balance amid extended OPEC+ production cuts through the second quarter. Joined by expectations for greater than previously projected economic growth in the U.S., and improving but mixed signals from China's economy, forecasters anticipate global inventory levels to be drawn down in the second quarter.

Ukrainian drone attacks on Russian refineries, which were more targeted in March than January and February attacks, hitting major processing units, were seen exacerbating the supply tightness, namely for diesel fuel. Yet, reduced refinery production was also seen pushing more Russian crude oil into the export market despite sanctions.

"The latest attacks targeted primary refining processing units resulting in Russian waterborne product exports decreasing by an average 1 million barrels a day over the last two weeks," said Wood Mackenzie, a company providing data and analytics for energy transition.

Yet, as Wood Mackenzie noted, softening demand for the middle of the barrel mitigates the supply impact. Indeed, distillate fuel supplied to the U.S. market during the four weeks ended March 15 averaged 3.693 million barrels per day (bpd), according to the Energy Information Administration (EIA), 1.9% lower than the comparable year-ago period amid weak manufacturing activity.

Distillate fuel inventory edged up 1.51 million bbl to 118.522 million bbl during the first half of March, according to EIA, as tepid demand countered refinery downtime.

April ULSD futures fell $0.0154 on the session and $0.0736 or 2.7% from last Friday with a $ 2.6534-gallon settlement, reversing lower from an early week four-week high or $2.7963 gallon. May Brent futures eased $0.35 Friday while inching up $0.09 on the week to settle at $85.43 bbl.

An overbought market limited the weekly advance in April RBOB futures this week, which gained $0.019 from last Friday and $0.0127 on the session to settle at $2.7398 gallon after trading at a $2.7682 six-month high on the spot continuous chart earlier in the week. Gasoline stocks were drawn down 23.361 million bbl or 9.2% from the end of January to 230.773 million bbl on March 15, according to EIA, last measured 5.675 million bbl or 2.4% below the five-year average. Implied gasoline demand averaged 8.833 million bpd during the four weeks through March 15, up 26,000 bpd or 0.3% against the comparable period in 2023.

Brian L. Milne can be reached at brian.milne@dtn.com.