DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures closest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session higher, as hope for an Israeli-Hamas ceasefire in Gaza diminished, overtaking bearish weekly supply-demand data and a surging U.S. dollar on renewed inflation concerns.

Several media outlets, including the Wall Street Journal and Reuters, said an Israeli airstrike killed three adult sons of Hamas leader Ismail Haniyeh in Gaza, with Israel indicating they were members of the Hamas military wing. The incident clouded the prospect for a ceasefire between Israel and the Iranian-backed terrorist organization that was renewed on Sunday (4/7) amid intense international pressure, including from the United States.

Brent and West Texas Intermediate futures surged last week following a missile strike in Damascus, Syria, on April 1 that killed several members of Iran's military, including two generals. Iran vowed retaliation, blaming Israel for the attack.

The geopolitical threat of a broadening war in the Middle East outmuscled bearish statistics from the Energy Information Administration that showed across-the-board inventory builds and weak demand. Gasoline supplied to the U.S. market plunged 624,000 bpd to an 8.612 million bpd six-week low, and distillate fuel supplied to the domestic market tumbled 509,000 bpd to a 2024 low last week. EIA data shows gasoline demand during the four weeks ended April 5 down 241,000 bpd or 2.7% against the comparable year-ago period at 8.843 million bpd, and demand for distillate fuel 349,000 bpd or 8.9% lower at 3.573 million bpd.

Despite an inverse relationship, WTI futures advanced despite a surging U.S. dollar, which spiked 1.1% in index trading against a basket of foreign currencies to a 105.031 five-month high. The dollar surged in response to a hotter-than-expected month-on-month increase in a key inflation reading, with the U.S. consumer price index up 0.4% in March, according to the Bureau of Labor Statistics. Against a year ago, CPI is up 3.5% in March, with core CPI, which strips out energy and food because of their inherent volatility, up 3.8% from March 2023.

Investors responded by pushing back their expectations for lower interest rates beyond July, with the Federal Open Market Committee not expected to reduce the federal funds rate from a 5.25% to 5.5% target range until September. The CME FedWatch Tool shows a 59% probability FOMC will maintain the federal funds rate in its current target range in July compared with a 25% probability on Tuesday.

Minutes from the FOMC's March 19-20 meeting released at 2 p.m. EDT support this view.

"Members viewed the economic outlook as uncertain and agreed that they remained highly attentive to inflation risks. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2% over the longer run, members agreed to maintain the target range for the federal funds rate at 5.25 to 5.5%."

FOMC members reiterated their dependency on evaluating incoming economic data before making any changes to the policy rate, and that it would not "be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent."

FOMC meets in May, June, July, September, November, and December.

NYMEX May WTI futures settled up $0.98 at $86.21 bbl, and ICE June Brent gained $1.06 to $90.48 bbl. NYMEX May ULSD futures advanced $0.0306 to $2.7076 gallon, with the May RBOB contract up $0.0260 on the session with a $2.7816 gallon settlement.

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