DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled mixed Thursday, as the U.S. dollar rallied for a second session following Wednesday afternoon's hawkish remarks from Federal Reserve Chairman Jerome Powell over inflation and interest rates that heightened concern the United States could tilt into recession.

The U.S. dollar rallied 1.4% to a 112.804 two-week high settlement Thursday, continuing to find support a day after the Federal Open Market Committee lifted the federal funds rate by 0.75% for the fourth consecutive meeting to a target range of 3.75% to 4% -- the highest overnight bank borrowing rate since 2008. Economic projections by FOMC released in September noted a commitment by central bank officials to front-load rate hikes with a terminal rate of 4.75% to 5% by the end of 2023.

While little changed in the Fed's trajectory on rates, Powell punctuated the central bank's hawkishness, stating, "There are still some significant rate increases coming before we get to the level that is sufficiently restrictive."

The Fed chief added, "incoming data suggests no pattern of inflation coming down," implying a protracted period of higher interest rates.

Data released Thursday supported Powell's comments, with unemployment claims barely budging despite rising interest rates and the service economy remaining in expansion territory for the 29th month in a row in October, according to the Institute of Supply Management.

Adding to the market's worry, business operators reported ongoing price pressures for inputs and labor costs, confirming that inflation is becoming more entrenched in the broader economy. Service operators also reported that hiring remained a challenge and qualified workers were scarce, reinforcing Tuesday's Labor Department's Job Openings and Labor Turnover survey that showed new vacancies unexpectedly jumped by nearly 500,000 in September to 10.717 million after falling in August. There were roughly 1.9 open positions for every person looking for work in September, up from 1.7 in August.

The outlier in the oil complex was once again the December ULSD contract that advanced more than 5% on the back of tight distillate inventories on both sides of the Atlantic Basin, with demand for middle distillates expected to pick up in the winter months. Wednesday's inventory report from the U.S. Information Administration showed domestic diesel stocks rose only marginally ahead of the winter heating season and still remain some 22% below the five-year average at 106.8 million bbl.

U.S. inventories remain low across the board for most petroleum products, heightening fears that the impending end of the releases from U.S. strategic reserves will remove a source of the cushion supply. Against this backdrop, the Department of Energy this afternoon announced final bids for 15.05 million bbl of crude oil from the Strategic Petroleum Reserve that will be released in December, which completes the 180 million bbl of SPR crude sales U.S. President Joe Biden pledged on March 31.

At settlement, NYMEX December West Texas Intermediate slid $1.83 to settle at $88.17 bbl, with January Brent, the international crude benchmark, falling $1.49 bbl to $94.67 bbl. NYMEX December RBOB futures slipped $0.0033 to $2.6939 gallon, and December ULSD futures surged $0.1879 to $3.8653 gallon.

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