DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange deepened losses on Thursday, with the U.S. crude benchmark falling below $36 barrel (bbl) alongside tumbling equities after Wednesday's cautious comments from the Federal Reserve fueled risk-off sentiment across markets, with the Fed chief warning of a prolonged and uneven economic recovery.

U.S. Federal Reserve announced Wednesday it plans to keep the federal funds rates near zero for at least two years, indicating the economy might need more support to navigate its way out of the "Great Pause" recession than initially thought.

"We are not even thinking about thinking to raise interest rates," said Fed Chairman Jerome Powell Wednesday.

The problem for markets is two years of low rates shows how uncertain the central bank is about the recovery. After the week prior's supportive jobs report showing 2.5 million jobs were added in May versus calls for an 8 million decline, investors seemed to have increased their bets for a swift recovery, sending Dow Jones Industrials to a more than three-month high on Monday. U.S. Chamber of Commerce data reported nearly 80% of small businesses have now opened their doors, with most bringing back their employees after months of shutdown.

The Fed's outlook, however, shows unemployment will be around 9.5% in 2020 before gradually easing to 5% next year.

"It could be years before we get those people back to finding jobs," said Powell.

The Bureau of Labor Statics reported Thursday first-time unemployment claims eased to 1.542 million for the week ended June 6, bringing the total number of first-time claims to over 43 million in the past two months and seasonally adjusted unemployment rate decreasing 0.2% to 14.4% on the week. U.S. continued jobless claims came above market consensus at 20.929 million for the profiled week.

Market sentiment darkened with the Fed's pessimistic long-term outlook offered Wednesday, throwing cold water on risk-on trade Thursday, with a deeper retracement expected in the coming days. Dow Jones Industrials plummeted some 1,850 points or 6.5% to 25,231 and S&P 500 sank 5%, retreating after capturing hefty gains earlier this week.

On the session, West Texas Intermediate July futures plunged $3.26 to $36.34 bbl and Brent crude for August delivery tumbled $3.18 to $38.55 bbl. NYMEX RBOB July futures shed 9.11 cents to settle at $1.1188 gallon and ULSD July futures declined 8.5 cents to $1.0880 gallon.

Further feeding into the selloff, new coronavirus infections surged across states that have recently reopened their economies, potentially derailing plans to further reopen other parts of the country. Texas on Wednesday reported 2,504 new coronavirus cases, the highest one-day total since the pandemic emerged, Bloomberg News reported. Florida this week reported 8,553 new cases - the most of any seven-day period. U.S. Treasury Secretary Steven Mnuchin said Thursday the government will not shut down the economy again.

"We've learned that if you shut down the economy, you're going to create tremendous damage," said Mnuchin.

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

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