DTN Oil

WASHINGTON (DTN) -- Following overnight softness, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange resumed gains in morning trade Wednesday, underpinned by a weakening U.S. dollar and risk-on sentiment in financial markets after Federal Reserve Chairman Jerome Powell eased investor concerns over raising interest rates in the near term, citing an uneven recovery in the labor market and soft inflation as reasons to keep the federal funds rate near zero.

"The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved," Powell said during his testimony to the Senate Banking Committee Tuesday, while noting the inflation dynamic in many pandemic-hit sectors, like services and leisure, would likely remain muted for many months to come.

Powell reassured markets that any policy change will be made "carefully, patiently, and with a lot of advance warning," easing angst over recent gains in consumer prices.

Investors grew increasingly concerned over the turbocharged rally across some commodity markets this year, with copper and oil prices surging nearly 20% since the start of 2021. Metals are particularly sensitive to industrial demand, while so-called "reopening" trade suggests investors are positioning for a stronger market this summer.

Surging metal prices, however, may undermine a recovery for the oil industry, particularly for U.S. shale production, where Winter Storm Uri caused havoc last week in Texas and surrounding states, triggering wellhead freeze-offs in the Permian and Eagle Ford basins.

Oil services contractors may struggle to repair and replace pipes, wells and other infrastructure needed to bring back production on time and on budget. That will slow the supply response even as demand returns when the economy emerges from the lockdowns and quarantine restrictions.

A host of smaller Permian-focused shale operators this week revised lower their first quarter production forecasts, while pledging to keep output flat this year in line with activity during the fourth quarter 2020.

None of the investment banks or trading houses forecast a meaningful rebound in U.S. shale production in 2021 as operators are seen prioritizing free capital flows versus growth.

"Even though we're seeing consistent drawdowns now and a recovery in demand, I still believe a disciplined approach is going to win the day," Marathon CEO Lee Tillman said. "We have to continue to drive outsized free cash flow in order to offset the implicit risk and volatility in our sector," he added

Oil futures only briefly paused their recent rally after industry data from the American Petroleum Institute reported an unexpected increase in domestic crude and gasoline supplies during the week ended Feb. 19. Consensus called for domestic petroleum supplies to have dropped sharply last week due to last week's weather-related disruptions in Texas, New Mexico, and Oklahoma. Industry data, however, showed commercial crude oil supplies rose 1.026 million barrels (bbl) in the reviewed week, while median expectations for a 4.9-million-barrel drop. Stocks at the Cushing, Oklahoma hub also increased, up 2.783 bbl from the previous week, according to the survey. Gasoline stockpiles added just 66,000 bbl while distillate inventories dropped more than expectations with a 4.489 million bbl draw.

In early trading, West Texas Intermediate futures for April delivery surged 71 cents to near $62.37 bbl and front-month Brent futures on ICE gained 84 cents to trade above $66 bbl. NYMEX March ULSD future were up 1.48 cents to $1.8828 gallon and front-month RBOB contract spiked 2.14 cents or 1% to $1.8800 gallon.

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