Oil Futures End Mixed, Erase Gains as Fed Signals Rate Hike

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session mostly lower, with the front-month RBOB contract falling as much as 1% after government data showed gasoline stocks increased for a third consecutive week through June 11. Equity markets slumped after the Federal Reserve signaled it expected to boost the federal funds rate two times by the end of 2023, earlier than anticipated.

"Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened," the Federal Open Market Committee said in a statement Wednesday afternoon.

The central bank now expects gross domestic product to grow 7.0% in 2021 compared to the 6.5% forecast from its economic projection released in March. The Fed also raised its 2023 real GDP forecast from the previous 2.2% to 2.4%.

The Fed left the benchmark borrowing rate unchanged between 0% and 0.25% and said it would continue to buy $120 billion of Treasuries and mortgage-backed securities monthly until "substantial further progress" had been made by the labor market.

The number of Fed officials that expect rate hikes as early as 2022 -- known as the dot plot -- increased to seven from four, essentially translating into two 2023 rate hikes based on growth and inflation projections from the 18 members of the FOMC.

The Fed has significantly raised its inflation forecast this year to 3.4% compared to the previous estimate of 2.4%. At a news conference following the two-day policy meeting, Fed Chairman Jerome Powell said inflation over the past couple of months had come in above expectations, but added the categories affected by the economy's reopening were seeing the biggest gains.

U.S. Bureau of Labor Statistics previously reported the consumer price index increased 0.6% in May on a seasonally adjusted basis after rising 0.8% in April, while up 5% year-on-year last month. This marked the largest 12-month increase since a 5.4% spike for the period ending August 2008.

Separately, U.S. commercial crude oil inventories fell by 7.4 million barrels (bbl) in the week ending June 11, the U.S. Energy Information Administration said Wednesday morning, as refining utilization rose to 92.6%, the highest run rate since January 2020. The inventory draw was larger than expected and was driven, in part, by surging crude exports in another signal of improving demand worldwide.

Domestic refiners processed 16.337 million barrels per day (bpd) of crude oil last week, hiking the utilization rate 1.3% from the first week of June to 92.6% of capacity -- the highest run rate since the first week of January 2020.

U.S. gasoline stocks gained 2 million bbl from the previous week to 243 million bbl compared with analyst expectations for inventories to have fallen by 800,000 bbl from the previous week. Demand for motor gasoline reversed higher to above 9 million bpd at 9.36 million bpd, up 880,000 bpd from the previous week, easing some concern over summer driving demand.

Distillate stocks fell 1 million bbl to 136.2 million bbl and are now about 6% below the five-year average, according to government data. Earlier in the week, analysts expected distillate supplies would rise by 100,000 bbl from the previous week. Distillate supplied to the U.S. market, a measure for demand, surged 923,000 bpd to 4.336 million bpd.

On the session, NYMEX July RBOB futures declined 1.43 cents to settle at $2.1562 gallon and July ULSD futures fell 0.89 cents to $2.1034 gallon. NYMEX West Texas Intermediate July contract settled little changed at $72.15, and near a fresh 32-month spot high at $72.99 bbl. International crude benchmark August Brent contract advanced $0.40 to $74.39 bbl.

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

Liubov Georges