Oil Lower Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures fell this morning on profit-taking spurred by hawkish minutes of the Federal Reserve's April meeting that strengthened the dollar, with weekly data released Wednesday showing an unexpected build for domestic crude stocks added to the sell-off.

The minutes, released Wednesday afternoon, showed the central bank may be ready to raise interest rates in June if the economy continues to improve. It confirmed recent comments by regional Fed officials who argued the economy was fundamentally strong enough to support a hike in interest rates.

As a result, most traders now believe rates will be raised next month and they are selling equities and commodities since higher rates are seen limiting liquidity as it would boost borrowing costs. It comes after the oil futures complex recently rallied to multi-month highs on supply outages in Canada, Nigeria and Venezuela, as well as on falling U.S. production.

At last look, NYMEX June West Texas Intermediate crude futures tumbled 99cts to $47.20 bbl ahead of its expiration on Friday (5/20). July WTI futures fell $1.06 at $47.72 bbl. July Brent on the IntercontinentalExchange fell $1.09 to $47.84 bbl. NYMEX June ULSD futures fell 2.82cts to $1.4549 gallon while June RBOB futures tumbled 3.92cts to $1.6097 gallon.

On Wall Street, equities continued lower while the dollar rose to a seven-week high after Fed minutes showed policymakers thought last month that the risks to the U.S. economy from overseas woes have receded and unless there is new data showing the economy is weakening, the central bank could raise its key benchmark interest rate as early as June.

The minutes said risks to the U.S. economy from overseas woes have receded, and dovetailed hawkish comments from several Fed officials on rates. Richmond Fed President Jeffery Lacker, Atlanta Fed President Dennis Lockhart, and San Francisco Fed President John Williams, have all in the past two days suggested two to three rate hikes are appropriate for this year.

Last week, the heads of New York, Boston and Kansas City Feds indicated the market was underestimating the resilience of the economy and what the Fed might do with regards to interest rates.

Others officials said since the labor market has improved to near what the Fed considers full employment, the central bank was keen on getting inflation moving towards its 2.0% target.

On Wednesday, data showed core inflation rose 0.2% in April after a 0.1% gain in March, with year-on-year gains at 2.1%, which is in line with the historical average.

On supply, the Energy Information Administration on Wednesday reported that domestic crude stocks increased 1.3 million bbl during the week-ended May 13 while the market expected a 3.0 million bbl stock draw.

The bearish EIA crude data was somewhat softened by draws for product stocks as demand rose for the week, with production outages in Canada and Nigeria totaling about 2.0 million bpd countered by production increases by Iran and Iraq.

The market now awaits Baker Hughes, Inc.'s weekly U.S. rig count report due out Friday afternoon.

George Orwel can be reached at george.orwel@dtn.com