DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session sharply lower on a stronger U.S. dollar tied to expectations for another rate hike from the U.S. Federal Reserve next week and persistent concerns over fuel consumption in the United States along with uncertainty about a post-lockdown rebound in Chinese demand.

On the session, the U.S. dollar index strengthened a modest 0.03% against a basket of foreign currencies to settle at 103.215, pressuring West Texas Intermediate futures which has an inverse relationship to the U.S. currency. WTI for April delivery declined $3.47 to $71.33 bbl, and international crude benchmark Brent contract for May delivery fell to $77.45 bbl, down $3.32. NYMEX RBOB April futures dropped back $0.0384 to $2.5530 gallon, and ULSD April futures retreated $0.0471 to $2.7144 gallon.

Greenback's rebound after three down sessions follows a strong reading on core U.S. consumer price index, which is considered a barometer of a long-term inflation trend, increased 0.5% in February, according to data published this morning by the Bureau of Labor Statistics.

Shelter was once again the largest contributor to the monthly rise in consumer prices, accounting for over 70% of the increase, with the indexes for food, recreation, and household furnishings and operations also boosting consumer prices. That is bad news for the Federal Reserve that has tried to ease price pressures in the services industry for over a year now. All else equal, a resurgence of faster inflation in the core services might have led the Federal Open Market Committee to approve a 50-basis point increase in the federal funds rate next week after gradually moderating the pace of rate hikes. However, the collapse of the Silicon Valley Bank and the risks to the financial system likely took this option off the table, at least according to money markets.

U.S. funds rates futures, however, point to a higher chance for the FOMC to approve a 25-basis point rate increase at their March 21-22 meeting.

Also Tuesday, oil traders positioned ahead of the weekly inventory report from the American Petroleum Institute on tap for 4:30 PM ET release, followed by official data from the U.S. Energy Information Administration Wednesday morning. Analysts expect U.S. commercial crude oil inventories to have increased by a marginal 100,000 bbl last week, with estimates ranging from a decrease of 3 million bbl to an increase of 3.5 million bbl.

Gasoline stockpiles are expected to have declined 1.2 million bbl from the previous week, while distillates stocks, which are mostly diesel fuel, are expected to have decreased by 600,000 bbl. Refinery use likely increased by 0.5% from the previous week to 86.5% of capacity.

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