Oil Turns Lower as USD Rallies

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were in negative territory Wednesday afternoon after settling shallowly mixed, with the futures complex pressured by a stronger U.S. dollar following the release of minutes of the Federal Open Market Committee's Jan. 30-31 meeting.

"When the minutes of the FOMC came out at [2:00 PM ET], crude started to decline as well as the stock market in anticipation of higher interest rates, which would translate to a stronger dollar," said Andy Lipow, president of Lipow Oil Associates in Houston. "The Dow [Jones Industrial Average] was up 250 points and bond prices came off because yields have gone up. This is the event that ties together all the markets."

The minutes for last month's FOMC meeting showed policymakers acknowledged stronger-than-expected U.S. economic growth, crediting the tax cuts enacted by Congress and signed into law by President Donald Trump. The minutes also showed the Fed is still not worried about inflation, and continues to target a 2.0% medium term inflation growth rate.

Initially, the minutes were viewed as dovish, but traders have now reassessed their initial view. Analysts said the minutes didn't fully capture inflation data, with the January meeting taking place before the Department of Labor's nonfarm employment report for January was released that showed higher wages which prompted a steep selloff in equities earlier this month, said the analysts.

Major equity indices tumbled in late trading, with the DJIA down more than 150 points and the S&P 500 Index 15 points lower in late afternoon trade. The dollar was trading at a one-week high.

NYMEX April WTI crude futures settled down 11cts at $61.68 bbl while ICE April Brent crude futures settled 17cts higher at $65.42 bbl. NYMEX March RBOB futures edged up 0.70cts at $1.7573 gallon and March ULSD futures was 0.46cts higher at $1.9323 gallon.

Since settlement, oil futures have turned lower.

The decline by oil futures in late trading comes ahead of weekly supply reports this afternoon and Thursday morning.

A survey of analysts found mixed expectations for the change in crude inventory for the week-ended Feb. 16, but on average see total crude stocks holding steady at the prior week's level of 422.1 million bbl. Crude stocks at the Cushing, Oklahoma supply hub that serves as the delivery location for NYMEX West Texas Intermediate futures are estimated to have decreased by 2.0 million bbl. Gasoline stockpiles are seen up 500,000 bbl while distillate fuels stocks are estimated to have declined by 750,000 bbl for the week-ended Feb. 16.

The American Petroleum Institute will release its weekly oil data at 4:30 PM ET, delayed a day by Monday's observance of the Presidents Day holiday. The Energy Information Administration will issue its data at 11:00 AM ET on Thursday.

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