Oil Gains as US Crude Stocks Fall, Fed Signals Moderation

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 Wednesday's session higher after Federal Reserve minutes for their meeting in early May revealed that while the central bank is sticking to its commitment to lift short-term interest rates, Fed officials are not planning more aggressive measures in tightening monetary policy.

Major equity indices advanced Wednesday and the U.S. dollar index bounced off a one-month low to settle modesty higher at 102.077 following the afternoon release of minutes from the Federal Open Market Committee's May 3-4 meeting. While many market watchers have worried the central bank was set to pilot an aggressive monetary tightening path that could tip the U.S. economy into recession, minutes show Fed officials expect the U.S. economy to rebound from a first quarter contraction, as both business and household spending remained strong, and the job market remained robust. This led to a conclusion to hike the federal funds rate 50 basis points, announced May 4, and to begin reducing its holdings of Treasuries and mortgage-backed securities beginning June 1, while continuing to monitor economic developments.

Bureau of Economic Analysis Thursday morning will release its second estimate of first quarter U.S. gross domestic product which is expected to show a 1.3% contraction on an annualized basis that would be slightly better than an advanced estimate showing the U.S. economy shrunk at a 1.4% annualized rate. Earlier Wednesday, the Atlanta Fed GDPNow model calls for second quarter GDP growth of 1.8%.

Midmorning Wednesday, Energy Information Administration reported a 1-million-barrel (bbl) draw in commercial crude oil inventory occurred during the week-ended May 20 that was more than expectations for a 600,000 bbl decline and countered a 567,000 bbl build reported late Tuesday by the American Petroleum Institute. Missed expectations coincide with the highest refinery run rate since the end of 2019 at 93.2%, up 1.4% from the previous week, with crude inputs topping 16 million bpd at 16.269 million barrels per day (bpd) for the first time since mid-August 2021. Crude inputs increased 334,000 bpd or 2.1% during the week reviewed, with the weekly input rate the third highest over the past 12 months.

EIA also showed U.S. crude exports surged by 821,000 bpd or 23.3% last week to 4.341 million bpd, as crude oil released from the U.S. Strategic Petroleum Reserve continues to head to U.S. ports for export. EIA reported crude oil from the SPR was drawn down 6 million bbl last week to 532 million bbl.

At settlement, July West Texas Intermediate futures gained $0.56 to $110.33 bbl, and ICE July Brent crude advanced $0.47 to $114.03 bbl. NYMEX June RBOB gained 2.07 cents to $3.8317 gallon, while front-month ULSD rallied 8.46 cents to $3.8664 gallon.

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

Liubov Georges