DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange were little changed early Wednesday as the U.S. dollar extended gains on the back of hawkish remarks from Federal Reserve Chairman Jerome Powell who signaled the central bank is prepared to speed up the pace and scope of rate hikes this year, prompting a resetting of expectations for higher terminal interest rates.

More than 70% of investors anticipate the Federal Open Market Committee will lift interest rates by 50 basis points during the March 21-22 meeting, up from 30% seen only a week ago. What's more, markets raised the expected peak rate to the range of 5.50% to 5.75% to be reached as early as June, implying a full percentage point in interest rate hikes between now and the June 14 meeting.

The repricing of the Fed's funds rate comes after Chairman Powell's surprisingly hawkish remarks in front of the Senate Banking and Housing Committee on Tuesday where he acknowledged that January data is too close for comfort to slow the pace of rate increases. "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. 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." said Powell.

Although inflation has slowed in recent months from a peak of 9.1% to 6.4% in January, it is still far above the Fed's 2% target, and Powell and other Fed officials have cautioned that disinflation will be bumpy and there is a long "way to go." What is more troubling, inflationary pressures have partially reversed the downtrend at the start of the year, with consumer spending remaining strong and the job market adding a staggering 572,00 new jobs.

Chairman Powell will be back before Congress on Wednesday, this time in front of the House Financial Services Committee, where he will likely face additional questions on inflation and interest rates.

On the economic calendar Wednesday is the Labor Department's JOLTS report that tracks monthly changes in job openings that are seen falling to 10.6 million in January from over 11 million reported at the end of 2022. Powell argues that the Federal Reserve could achieve its goal of cooling the labor market without excessive job losses by simply reducing job openings. The markets will be carefully parsing through this morning's jobs data for confirmation of that thesis.

Separately, the American Petroleum Institute reported on Tuesday U.S. commercial crude-oil inventories unexpectedly declined through March 3 while gasoline and distillate fuel stocks posted a build. The report detailed a drop of 3.835 million barrel (bbl) in commercial crude oil stocks, missing calls for an increase of 700,000 bbl. Should the EIA data confirm the drawdown, this would be the first decline in domestic crude oil stocks since mid-December 2022. Inventories at the Cushing, Oklahoma, tank farm, the New York Mercantile Exchange delivery point for West Texas Intermediate futures, gained 24,000 bbl on the week. Gasoline inventory posted a build of 1.840 million bbl in the reviewed week, missing estimates for a drop of 1.4 million bbl. The data show distillate inventory increased 1.927 million bbl versus an expected 1 million bbl draw.

Near 7:45 a.m. EST, WTI futures for April delivery softened $0.48 to $77.10 bbl, and the international crude benchmark Brent contract with May delivery declined to $82.94 bbl. NYMEX RBOB April futures fell back $0.0237 to $2.6770 gallon, and ULSD April futures lost $0.0172 to $2.7803 gallon.

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