DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange powered higher early Wednesday after the American Petroleum Institute reported domestic crude oil inventories declined for the first time in seven weeks, easing some fears over building stocks, while a weaker U.S. dollar on the back of Chairman Jerome Powell's inflation comments further lifted sentiment.

U.S. Federal Reserve Chairman Powell, who participated in a question-and-answer session at the Economic Club of Washington, D.C., Tuesday, said he expected this year to see "significant declines" in inflation, albeit the process could be bumpy and take "some time." During his remarks, Powell noted the strong January employment report did not fundamentally change his view about the outlook for monetary policy, though it did "underscore" his belief that bringing inflation to the 2% target would require "ongoing rate hikes."

"It's a good thing that inflation has started to come down not at the expense of a strong labor market. But it shows you why the Fed thinks that bringing down inflation would take time."

This stands in sharp contrast to Powell's speech at Jackson Hole, Wyoming, last August, where he committed to take all necessary steps to bring inflation down and emphasized that inflation was unlikely to subside without some "pain" in the labor market.

Six months after the Wyoming speech, the U.S. labor market is still growing at a rapid clip, adding an average 374,000 new jobs in the three-months ending January while inflation cooled towards 6.1% from its midsummer peak of 9.1%. Wage growth decelerated towards 4.6% over the past three months from 6.1% seen at the end of 2021.

Next, investors await the inflation print for January scheduled for Feb. 14 release that will shed more light on the economy's direction at the start of the year.

As of Wednesday, U.S. Fed Funds futures show 93.7% of investors still expect the central bank to lift rates by 25 basis points in March followed by yet another rate hike of a similar size in May after which the Fed will hold rates above 5% before the first rate cut in December.

Near 7:30 a.m. EST, the U.S. dollar shed 0.28% against a basket of foreign currencies to trade near 103.005, spurring gains for front-month West Texas Intermediate futures which rallied to $77.91 barrel (bbl), up $0.73 on the session. The international crude benchmark Brent contract on ICE advanced to $84.34 bbl, up $0.65 bbl. NYMEX RBOB March contract rallied $0.0122 to $2.4690 gallon, and March ULSD futures climbed to $2.9421 gallon, retreating further from the $2.6653 one-year low on the spot continuous chart.

Underlying gains for the oil complex, the API reported late Tuesday commercial crude oil stocks fell 2.184 million bbls last week versus expectations for a build of 1.8 million bbls. Stocks at the Cushing, Oklahoma, tank farm, the New York Mercantile Exchange delivery point for West Texas Intermediate futures, increased 178,000 bbl on the week.

Gasoline inventories posted a 5.261 million bbl build on the week, more than four times calls for stocks to increase 1.4 million bbls. The API reported middle distillate stocks increased 1.109 million bbls through Feb. 3, well above expectations for a 200,000 bbl gain.

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