WASHINGTON (DTN) -- Nearby month delivery crude and refined product futures on the New York Mercantile Exchange and Intercontinental Exchange pared gains in afternoon trade to end mixed Wednesday. West Texas Intermediate slipped below $53 barrel (bbl) as the U.S. Dollar Index (USD) marched higher and stocks on Wall Street plummeted amid concerns over a disconnect between the slowing pace of economic activity and exuberant financial markets.
"The pace of the recovery in economic activity and employment have moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic," said Federal Reserve Chairman Jerome Powell following the conclusion of a two-day policy meeting by Federal Open Market Committee. FOMC kept their target range for the federal funds rate unchanged near 0% and expects to leave interest rates near zero until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and for inflation to rise to 2%. In addition, the Federal Reserve will continue to purchase at least $80 billion of Treasury securities and $40 billion of mortgage-backed securities each month.
The Fed's quantitative easing program has been credited with fostering smooth market functioning and the free flow of credit to households and business. On the other hand, it has been criticized for distorting financial markets and offering a lifeline to failed companies that would have gone bankrupt otherwise.
These concerns appear to have taken center stage Wednesday, with Dow Jones Industrials suffering heavy losses to the tune of more than 600 points late afternoon and S&P 500 Index falling 2.6% following recent record highs.
The U.S. Dollar Index remained on the offensive in afternoon index trade to finish at a 1-1/2 week high 90.640, pressuring front-month WTI futures off its early session highs.
At settlement, NYMEX WTI March contract added 24 cents to settle at $52.85 bbl, with the prompt-month Brent contract slipping 10 cents to $55.81 bbl before expiration Friday afternoon. Brent April futures maintained a 28-cent discount against the expiring contract. NYMEX February ULSD futures advanced 1.05 cents to $1.6089 gallon, with the next-month delivery March contract settling near parity at $1.6076 gallon. NYMEX February RBOB futures slid 0.36 cent to $1.5771 gallon, with the March contact narrowing its discount to the front-month contract to 0.55 cent. Both contracts expire Friday afternoon.
Wednesday's inventory data from the Energy Information Administration was mostly supportive for the oil complex, showing a larger-than-expected 9.910 million bbl decline in commercial crude oil inventories and a surprise 814,992 bbl draw in distillate supplies. Demand for distillate fuels shot up 479,000 barrels per day (bpd) during the week ended Jan. 22 to the highest rate since early March at 4.3 million bpd. Gasoline supplied to the U.S. market, a measure for demand, continued to lag far behind pre-pandemic levels at 7.833 million bpd. Over the past four weeks, gasoline consumption averaged 7.7 million bpd, down by 9.5% from the same period last year. With high unemployment levels and slowing economic recovery, U.S. gasoline use is likely to remain under pressure until vaccination programs deliver on immunization targets.
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