DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures nearest delivery rallied in afternoon trade Wednesday as the U.S. dollar declined sharply after Federal Open Market Committee raised the federal funds rate 25 basis points while at the same time acknowledging turmoil in the banking sector could slow the already fragile economy.

The 25-basis point hike moves the federal funds rate to a 4.75% to 5% target range, which was widely expected. In a statement, the Fed's policymaking committee said it "will closely monitor incoming information and assess the implications for monetary policy." Additionally, the central bank removed the phrase "ongoing increases" from its statement, suggesting the central bank might be pivoting away from further rate increases.

"Financial conditions seem to have tightened," Fed Chair Jerome Powell in his news conference following the rate decision. "We'll be looking to see how serious this is, and does it look like it's going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions."

The Fed's rate hike comes amid uncertainty over the health of the global banking sector. Earlier this month, Silicon Valley Bank collapsed, and Signature Bank was shut by the Treasury Department, while UBS acquired rival Credit Suisse -- a move forced by Swiss regulators to shore up the country's banking industry.

On the bullish side, the latest Fed projections called for just one more hike this year. But Powell said in his news conference that the inflation fight is far from over.

Also on Wednesday, U.S. Energy Information Administration released an inventory report showing gasoline inventory declined for the fifth week through March 17, down 6.4 million bbl to a 229.6 million bbl 10-week low. The steep draw was well above the 1.09 million bbl decline reported late Tuesday by the American Petroleum Institute, with last week's draw realized as implied gasoline demand increased 366,000 bpd to 8.96 million bpd -- the second-highest weekly domestic consumption rate in 2023.

Over the four-week period ended March 17, implied gasoline demand averaged 8.807 million bpd, near the comparable period in 2022 when the four-week consumption rate was 8.821 million bpd. So far in 2023, gasoline demand trails the year-ago pace by 114,000 bpd or 1.3% at 8.486 million bpd.

Gasoline stocks have been drawn down 12.324 million bbl or 5.1% since Feb. 10 when they reached a 241.922 million bbl 11-month high, EIA data shows. The steep draw is realized following the heaviest refinery maintenance season in five years, with planned turnarounds taking about 1.5 million bpd of refining capacity offline at its peak in February.

The U.S. refinery run rate continued to ramp higher in mid-March, climbing 0.4% to a 12-week high utilization rate at 88.6%, although down 2.5% against a year ago. Over the four weeks ended March 17, the refinery run rate averaged 87.2% compared with 89.6% during the corresponding four weeks in 2022.

Distillate fuel inventory also widened a stock deficit against the five-year average last week following a 3.3 million bbl weekly draw that was more than an API-reported 1.84-million-bbl decline. The draw pressed distillate stocks to a 116.4 million bbl eight-week low, widening a deficit against the five-year average by 3.3 million bbl to just over 12 million bbl, although inventory is 4.3 million bbl above a year ago amid heavy drawdowns on sharp demand in early 2022.

Commercial crude inventory in the United States increased 1.1 million bbl to a 22-month high at 481.18 million bbl, widening a surplus against the five-year average by 3.288

At settlement, NYMEX West Texas Intermediate futures rallied $1.23 to $70.90 bbl, and the international benchmark Brent gained to $76.69 bbl, up $1.37. NYMEX RBOB rallied $0.0543 to $2.5932 gallon and ULSD futures for April delivery advanced $0.0501 to $2.7403 gallon.

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