DTN Oil

WASHINGTON, D.C. (DTN) -- Except for a strengthening RBOB contract on the back of a 6.4 million bbl drawdown in U.S. gasoline inventories, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined on Thursday as investors assessed the impact of the latest increase in the federal funds rate by the Federal Reserve that signaled more rate hikes might be appropriate to fight inflation.

Federal Open Market Committee lifted the overnight bank borrowing rate 0.25% on Wednesday to a 4.75% to 5% target range, matching market expectations, while signaling the central bank might raise rates one more time should inflation prove sticky in coming months.

"We really don't see enough progress on core services inflation which excludes housing. The strength of recent readings indicates inflation pressures continue to run high," said Fed Chairman Jerome Powell in his news conference following the rate decision.

The message is underpinned by data released on March 14 showing prices paid by consumers had once again risen faster-than-expected last month. Fed's policy committee in its March economic projections said consumer inflation will average 3.3% this year -- higher than the 3.2% level of inflation expected in December, and well above the Fed's 2% target.

On the economy, FOMC revised its 2023 gross domestic product forecast down 0.1% to 0.4% on Wednesday, and projected the national unemployment rate would climb to 4.5% -- almost a full percentage point higher than the current 3.6% rate.

"Reducing inflation is likely to require a period of below trend growth for some time along with softer labor conditions," reiterated Powell, adding recent developments in the banking sector "could tighten credit conditions to further weigh on the economy."

Softer growth expectations are yet to reflect in labor market conditions. Unemployment claims fell again last week to 191,000, remaining below pre-pandemic average of 200,000 for every week this year except for three. This could be supportive for the gasoline demand in the U.S. that typically tracks the labor market.

Wednesday's inventory report from the U.S. Energy Information Administration showed that demand for gasoline last week climbed to the second highest rate this year at 8.96 million bpd, up 366,000 bpd from the previous week. On a four-week average basis, gasoline consumption 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.

Greater demand along with lower production when compared with a year ago led to a steep 6.4 million bbl drawdown from nationwide gasoline stockpiles, with inventories having 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.

While gasoline stocks were drawn down, a 1.1 million bbl build in U.S. commercial crude oil inventories that pushed stockpiles to a 22-month high of 481.18 million bbl weighed on the oil complex. The build came despite the refinery run rate increasing 0.4% to a 12-week high utilization rate at 88.6%. Meanwhile, crude oil exports in the reviewed week averaged 4.932 million bpd, up from 3.844 million bpd seen a year ago.

At settlement, NYMEX West Texas Intermediate futures fell $0.94 to $69.96 bbl, and the international benchmark Brent contract declined to $75.91 bbl, down $0.78. NYMEX RBOB firmed $0.0127 to $2.6059 gallon and ULSD futures for April delivery retreated $0.0556 for a $2.6847 gallon settlement.

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