Oil Futures Soften as US Dollar Hits 2-Year High, Emergency Oil Stocks Release News

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 settled Thursday's session with modest losses, aside from a larger 2.3% decline by the ULSD contract. Futures were pressured by a stronger U.S. dollar following hawkish minutes from the Federal Open Market Committee's March meeting released Wednesday and details announced Thursday by the International Energy Agency of a planned coordinated release of 120 million barrels (bbl) from emergency oil stocks in response to supply disruptions stemming from Russia's invasion of Ukraine.

On the session, NYMEX May West Texas Intermediate futures slipped $0.20 to settle a tad above $96 per bbl, and the ICE June Brent contract declined $0.49 to $100.58 per bbl. NYMEX RBOB fell 0.64 cent to $3.0398 per gallon, and NYMEX ULSD dropped 7.74 cents to $3.2678 per gallon.

The U.S. dollar continued higher for the sixth straight session Thursday, spurred Thursday by revelations Fed officials are aiming to target rising inflation through aggressive monetary tightening, FOMC minutes from the March 15-16 meeting detail. Greenback made a new cycle high Thursday at 99.850 against a basket of foreign currencies in index trading. Minutes show most Fed officials would have preferred to raise the federal funds rate by 50 basis points last month instead of the 25-point hike if not for the Russian invasion of Ukraine.

"Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified," according to the minutes.

The 25-point increase in March was the first rate hike since 2018.

On Thursday, St. Louis Federal Reserve President James Bullard said the central bank is "behind the curve" in lifting interest rates to fight inflation but is making progress towards a corrective course.

"U.S. inflation is exceptionally high, and that doesn't mean 2.1% or 2.2% or something. This means comparable to what we saw in the high inflation era in the 1970s and early 1980s," he added. "Even if you're very generous to the Fed in interpreting what the inflation rate really is today ... you'd have to raise the policy rate a lot."

U.S. consumer price index in February came at its highest in 40 years at 7.9%, with prices for gasoline, shelter and food behind the increases.

Further weighing on the oil complex, IEA on Thursday confirmed the release of 120 million bbl over a six-month period, making it the largest release in their IEA history. The unanimous agreement among IEA member countries on April 1 for a second collective action this year came in response to the significant strains in oil markets resulting from Russia's invasion of Ukraine, IEA wrote.

The unprecedented decision to launch two emergency oil stock releases just a month apart and on a scale larger than anything before in IEA's history reflects the determination of member countries to protect the global economy from the social and economic impacts of an oil shock following Russia's aggression against Ukraine," said IEA Executive Director Fatih Birol. He further stressed that the events in Ukraine are "more distressing by the day, and action by the IEA at this time is needed to relieve some of the strains in energy markets."

The two IEA collective actions this year of 62.7 million bbl, agreed upon on March 1, and the latest 120 million bbl amount to 9% of total emergency reserves. According to IEA estimates, Russian oil production could fall by as much as 3 million barrels per day (bpd) this month as a result of the reluctance by Western banks and traders to deal with Russian energy exports.

Although the combined SPR release is unprecedented in its scale and scope, analysts are skeptical that it would have a long-term "cooling effect" on prices.

On March 1, IEA said its country members would draw 60 million bbl, which included 30 million bbl from the U.S. SPR, to counter soaring gasoline prices. A week later, the price of Brent, the international crude benchmark, surged more than 30% to its highest price point in 14 years at $139.13 per bbl.

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

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

Liubov Georges