WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled the first trading session of February with sharp losses amplified by a bearish inventory report from the U.S. Energy Information Administration showing domestic crude inventory rose to the highest level since June 2021 joined with the Federal Reserve signaling further rate increases are needed to lower inflation to its 2% target.
The Federal Open Market Committee raised its benchmark interest rate by 25 basis points on Wednesday, lifting the target range to 4.5% to 4.75%. The move was in line with market expectations.
"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," read the FOMC statement this afternoon following its two-day meeting.
In a news conference following the rate decision, Fed Chairman Jerome Powell acknowledged ongoing disinflation within several sectors of the economy, particularly in goods, but said that has yet to spread into the broader economy.
Markets mostly expect the Fed to raise the federal funds rate at least one more time in March by 25 basis points, but beyond that consensus diverges sharply with the Fed's projection. CME FedWatch Tool shows a majority of investors are still betting on a peak rate of 4.75% to 5% in March before the Fed starts cutting rates in the second half of the year. It is debatable, but Powell hardly pushed back against this narrative in his news conference, noting that "If we do see inflation coming down much more quickly, that will play into our policy setting, of course."
In reaction, the U.S. dollar plummeted 0.94% in afternoon index trading Wednesday to 100.955 -- the dollar's lowest value since April 2021, but failed to lend meaningful support for West Texas Intermediate futures that plunged $2.46 bbl on the session to $76.41 bbl. International crude benchmark Brent contract declined a steeper $2.62 to $82.84 bbl. NYMEX RBOB March contract nosedived to $2.4538 gallon, down $0.1130 gallon, and March ULSD futures sank $0.1937 to $2.9511 gallon.
Underlying Wednesday's losses for the oil complex was a bearish EIA inventory report showing U.S. total oil and petroleum product supplies spiked by 9 million bbl in the final week of January as refiners hit the brakes on runs. Out of that build, 4.1 million bbl was realized in commercial crude oil inventories which lifted total commercial stocks to 4% above the five-year average. The build in crude stocks occurred as domestic refineries reduced the run rate 0.4% to 85.7% of capacity while analysts expected runs to have recovered for a fourth week after plunging to a 79.6% utilization rate in late December. For the week, refiners processed an average of 15 million bpd of crude oil. Oil stored at Cushing, Oklahoma hub, the delivery point for WTI, jumped 2.3 bbl from the previous week to 38 million bbl.
In the gasoline complex, commercial stockpiles built by 2.6 million bbl in the reviewed week to 234.6 million bbl compared with expectations for a 900,000 bbl increase. Demand for motor fuel advanced to 8.491 million bpd, up 349,000 bpd.
Distillate demand, however, decreased again, down 186,000 bpd to 3.692 million bpd after consumption fell to the lowest weekly rate since April 2020 when the COVID-19 pandemic shuttered large chunks of the economy. Domestic distillate stocks increased by 2.3 million bbl to 117.6 million bbl.
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