Oil Spikes 8% as USD Hits 5-Week Low, Ceasefire Talks Stall

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange spiked more than 8% Thursday, climbing on reports suggesting a ceasefire agreement between Russia and Ukraine is a long way off despite a stalled offensive by Russian forces. Also, upbeat economic data in the United States revealed the labor market and industrial production continues to recover from the pandemic disruption, notwithstanding supply constraints and higher costs.

Federal Reserve Bank of Atlanta revised higher its outlook for gross domestic product growth in the first quarter to 1.3% Thursday from 1.2% seen on Wednesday (3/16). Earlier this year, Atlanta GDP Nowcast was calling for a 0.5% growth.

The update followed this morning's data from the Federal Reserve showing industrial production in the United States continued to expand in February while the Labor Department reported a decline in first-time unemployment claims to a 2 1/2-month low as new hiring picks up. In total, 1.419 million Americans were collecting jobless benefits during the week ended March 5 -- a 50-year low, while down 71,000 from the previous week.

Meanwhile, production at U.S. factories rose in February by the most in four months, Fed data showed, increasing 1.2% month-on-month from 0.2% seen at the start of the year. Total industrial production, which also includes mining and utility output, rose 0.5% last month. Factories were also able to ramp up capacity after weathering omicron-related challenges in recent months. Capacity utilization at factories rose in February to 78%, the highest since 2018, from 77.1% a month earlier.

On Wednesday, the Fed said the economy is strong enough to withstand a steady pace of rate increases in coming months after the central bank introduced the first interest rate hike since the beginning of the pandemic. The Fed's so-called "dot plot" -- a term used to describe the interest rate projections of the Fed's Open Markets Committee -- suggests a Federal Funds rate of around 1.9% by the end of this year, implying consecutive rate hikes until December, and 2.8% in 2023 and 2024, even as they expect inflation to moderate heading into the start of next year.

The Fed also released their first of four economic projections in 2022, with its median forecast for economic growth in 2022 revised down from 4% expected in December to a 2.8% growth rate in real gross domestic product.

In the aftermath of the pivotal but widely expected move by the central bank, the U.S. Dollar Index fell to a five-week low 97.970, down 0.66% against the basket of foreign currencies. Stocks on Wall Street again advanced Thursday, sending Dow Jones Industrials 270 points higher and S&P 500 Index up 0.69%.

NYMEX April West Texas Intermediate futures spiked $7.94 to settle a tad below $103 barrel (bbl), and ICE May Brent futures advanced $8.62 to $106.64 bbl. NYMEX April RBOB futures rallied 22.91 cents to $3.2166 gallon, while April ULSD futures surged 38.73 cents to $3.4874 gallon.

Investors continue to monitor ongoing ceasefire talks between Ukrainian and Russian peace delegations that have been locked in tense negotiations since late February.

"Both sides are taking negotiations seriously but there is a very, very big gap between the positions in question," one official said, speaking on condition of anonymity.

The update comes after earlier reports that the two countries had made significant progress on a 15-point peace plan that would mean Kyiv declaring neutrality and accepting limits to its armed forces. Ukraine would also have to pledge that it would not join North Atlantic Treaty Organization and promise not to host military bases from allies such as the United States and United Kingdom.

The lack of progress in the negotiations comes as the Russian offensive largely stalled on nearly all fronts, with reports indicating heavy losses among the Russian troops and civilian population. British Intelligence said on Thursday that Russian President Vladimir Putin's troops "have made minimal progress on land, sea or air in recent days."

Ukraine's President Volodymyr Zelensky addressed today Germany's Bundestag, following a speech to a joint session of the U.S. Congress Wednesday, and repeated his call for a halt to the assault of Mariupol, comparing it to the blockade of Leningrad during the Second World War. The situation remains fluid.

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

Liubov Georges