WTI Slides 2% Ahead of Stock Data, Fed's Call on Rates

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange accelerated losses in afternoon trade Tuesday, with the West Texas Intermediate contract falling more than 2%. The losses came as investors positioned ahead of the weekly release of U.S. inventory data and the likelihood for the biggest interest rate hike from the U.S. Federal Reserve since at least 2000, which has the potential to slow anticipated gains in summer oil demand.

Fanning concerns over a sharp slowdown of the U.S. economy, manufacturing data for April showed business activity unexpectedly dropped to the lowest level since May 2020, strangled by rattled supply chains and employment challenges. Measures of both new orders and production decelerated to 1-1/2-year lows yet remained above the threshold that indicates growth.

"Demand registered slower month-over-month growth likely due to extended lead times and decades-high material price increases and consumption softening amid labor force constraints," said Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Further evidence of economic slowdown could be found in U.S. first-quarter GDP data, showing a sharp deceleration of growth during the first three months of the year, down to a negative 1.4% compared to 6.9% recorded in the final months of 2021.

Against this backdrop, the U.S. Federal Reserve Open Market Committee is poised to decide Wednesday on the largest interest rate hike in the U.S. since at least 2000 to slow the record surge in consumer prices. Nearly 100% of investors expect FOMC to raise interest rates by 50-baisis points Wednesday, followed by similar increases in June and July, according to CME Fed WatchTool. Some analysts forecast the FOMC could even announce a 0.75% increase this summer as it battles a record surge in inflation. Such a move, however, could lead to recessionary pressures in the U.S. economy.

Separately, oil traders await the release of weekly inventory report from the American Petroleum Institute, on tape for 4:30 p.m. EDT release Tuesday, followed by official data from the U.S. Energy Information Administration on Wednesday. U.S. crude oil stockpiles are expected to have fallen by 200,000 barrels (bbl) in the week ended April 29. Forecasts range from a decrease of 2.6 million bbl to an increase of 2.8 million bbl. Gasoline stockpiles are expected to fall by 300,000 bbl from the previous week, according to analysts. Estimates range from a decrease of 1.4 million bbl to an increase of 1.7 million bbl. Stocks of distillates are seen falling by 1.5 million bbl from the previous week. Refinery use likely rose by 0.4% from the previous week to 90.7% of capacity.

Tuesday's lower settlements also follow reports that some members of the European Union seek exemptions from any potential ban on Russian oil imports, which is expected to be part of a sixth sanctions package against Moscow for its invasion of Ukraine. Hungary and Slovakia Tuesday morning reiterated their opposition to such a move, claiming it would be economically impossible for them to exit from Russian energy trade. Slovakia meets more than 60% of its oil demand with Russian imports. All 27 EU members must agree on the legislature for it to pass the European Commission that is expected to finalize the sanctions package Tuesday. In a major shift, Germany, the EU's largest importer of Russian oil, announced it is ready to support a gradual exit from Russian oil trade, meaning it would need a transitional period to find alternative suppliers after Berlin struck a deal with Poland that grants it access to the international seaport of Gdansk.

At settlement, NYMEX West Texas Intermediate futures for June delivery fell $2.76 to $102.41 per bbl, and the international crude benchmark July Brent contract declined $2.61 to $104.97 per bbl. NYMEX June RBOB eased 0.89 cent to $3.5012 per gallon, and the front-month ULSD contract plunged 12.22 cents to $4.0827 per gallon.

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

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

Liubov Georges