WTI Dives 3% on Powell's Hawkish Remarks, Eyed Crude Build

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange plunged more than 3% on Tuesday, pressured by a selloff in financial markets after Federal Reserve Chairman Jerome Powell signaled during prepared remarks before Congress that the central bank is prepared to lift interest rates higher to combat inflation that has reversed the downtrend experienced at the start of the year.

Powell opened the door for a 50-basis point rate hike at the Fed's next policy meeting on March 21-22, spooking investors across financial and commodity markets.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said in remarks to the Senate Banking, Housing and Urban Affairs Committee Tuesday morning. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

What could complicate Powell's message, however, is macroeconomic data scheduled to be released between now and March 22, which include employment and inflation reports for the month of February, that will likely influence the Fed's decision-making.

On Friday, the U.S. Labor Department will release its Non-Farm Employment Report that is expected to show 250,000 new jobs were added in the month of February -- a marked slowdown from January's neck-breaking pace of more than 500,000 jobs. The unemployment rate, meanwhile, is expected to remain unchanged at a 53-year low of 3.4%. A hotter-than-expected jobs report would further strengthen the case for the Federal Reserve to raise the peak target for the federal funds rate.

Investors anticipate rates would rise to around 5.5% by midyear and remain there through the end of 2023, according to CME Group.

In volatile trading Tuesday, the Dow Jones Industrial Average lost nearly 570 points or 1.7%, while the S&P 500 shed 1.5% of value. As the major stock indexes fell, the U.S. dollar index rallied 1.2% against a basket of foreign currencies to 105.592, pressuring front-month West Texas Intermediate futures that have an inverse relationship with the greenback. WTI futures for April delivery plunged $2.88 from a six-week high settlement on the spot continuous chart from the previous session to $77.58 bbl Tuesday.

On ICE, the international crude benchmark Brent contract with May delivery declined $2.89 to $83.29 bbl at settlement. NYMEX RBOB April futures fell back $0.0958 to $2.7007 gallon, and ULSD April futures lost $0.0891 to $2.7975 gallon.

Further pressuring the oil complex, traders and analysts anticipate U.S. commercial crude stocks increased for the 11th straight week through March 4 -- the longest inventory building pattern since the COVID-19 pandemic shuttered large chunks of the economy in Spring 2020. U.S. commercial crude oil stockpiles likely climbed by 700,000 bbl from the previous week, according to the surveyed analysts. Gasoline stockpiles, meanwhile, are expected to have declined by 1.4 million bbl, while stocks of distillates, which is mostly diesel fuel, are seen to have been drawn down 1 million bbl. Refinery use likely decreased by 0.1% from the previous week to an 85.7% utilization rate.

The American Petroleum Institute will release its weekly inventory survey 4:30 PM ET, followed by official data from the U.S. Energy Information Administration Wednesday morning.

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

Liubov Georges