DTN Oil

WASHINGTON (DTN) -- Nearest-delivery oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange settled Wednesday's session mostly higher. The gains came as the U.S. dollar slumped to a three-month low after the Federal Reserve announced plans to keep the federal funds rate near zero through at least 2022, while further supporting the U.S. economy through quantitative easing, spurring optimism for a continued recovery in demand.

Further lifting sentiment, demand for gasoline and distillate fuels pushed higher during the week ended June 5, with distillate consumption surging as much as 584,000 barrels per day (bpd) or 21.5% on the week. The jump in distillate demand offered hope the economy is improving. In prior weeks, demand for the middle of the barrel fuel, mostly used in manufacturing, trucking and agriculture, lagged far behind that of gasoline, highlighting the economic contraction after weeks of shutdown. U.S. gross domestic product is now forecast to have fallen over 50% in the second quarter, according to estimates by the Atlanta Federal Reserve.

"The path ahead for the economy is highly uncertain. The Fed is not even thinking about reining in rates," Federal Reserve Chairman Jerome Powell said in a Wednesday afternoon news conference following a two-day policy meeting that left the key interest rate unchanged in a 0%-to-0.25% target range.

The Fed's dot-plot showed interest rates will remain at or hold near zero until at least 2022, with GDP seen falling 6.5% for 2020 before growing again at a 5% rate in 2021. The unemployment rate is projected to average 9.3% in 2020 and fall toward 6% in 2021.

Equity markets edged modestly higher immediately after the announcement was made before reversing minutes later, plunging into the close. Dow Jones Industrials finished the session down 282 points, and the S&P 500 was down 0.53%. The U.S. dollar weakened to a three-month low of 95.705 against the basket of foreign currencies, spurring late-afternoon gains in oil complex.

At settlement, West Texas Intermediate July futures advanced $0.66 to $39.60 per bbl, and Brent crude for August delivery clawed back $0.55 to close at $41.73 per bbl. NYMEX RBOB July futures settled little changed at $1.2099 gallon, and ULSD July futures gained 1.83 cents to close at $1.1730 per gallon.

The oil complex came under selling pressure early in the session after the Organization for Economic Cooperation and Development released a rather grim outlook for the global economy, emphasizing the threat of a second wave of coronavirus infections. If the re-emergence of the virus is realized, global economic growth could fall by as much as 7.5% this year and will remain "well short" of its pre-crisis level by the end of next year.

"With or without a second outbreak, the consequences will be severe and long-lasting," the OECD cautioned.

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

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