DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled the last trading day of March and the first quarter higher. The gains came after U.S. inflation data showed a welcomed deceleration in core services prices, signaling consumer demand is ebbing under pressure from the Federal Reserve's rate increases.

Additionally, Baker Hughes data released Friday afternoon showed the number of active oil rigs drilling for oil in the United States declined this week for the sixth time in seven weeks. U.S. oil rigs now stand at the lowest level since September 2022 at 592. For the quarter, the total oil and gas rig count fell by 24 rigs -- the first quarterly decline since the third quarter of 2020.

Oil and gas operators are reluctant to invest in new drilling projects amid the uncertain outlook for the economy, volatility in oil prices and higher operational costs.

"Volatility in commodity markets and recent banking turmoil continue to play into business dynamics and are leading to a reduction in spending plans," an energy firm told the Federal Reserve Bank of Dallas.

The survey released on Wednesday showed Texas' oil and natural gas production stalled during the first quarter. Of the 147 energy firms responding to the survey, 68% reported greater uncertainty over their outlook.

As the bearish outlook leads to less investment in domestic production, the slowdown could lead to a tight crude market should demand surprise to the upside. Energy Information Administration on Wednesday reported a 100,000-barrel-per-day (bpd) decline in domestic crude production to 12.2 million bpd during the week ended March 24.

Adding to the industry's angst, the recent banking crisis, which has resulted in the failure of two U.S. regional banks and enforced rescue of Credit Suisse by UBS, is likely to result in a tightening of credit conditions. Some economists equate the stress in the financial system to the series of 75-basis hikes in the federal funds rate by the Federal Reserve in 2022, while others are being more conservative in their estimates. Even before the crisis, banks were tightening lending standards consistent with a recession, according to the Federal Reserve Board Senior Officers Survey. Over 40% of banks were pulling back lending over the January-February period, diminishing credit available for small to midsized firms.

On the macroeconomic data front, U.S. Personal Consumption Expenditures index -- the preferred inflation measure for the Fed, showed prices paid for core services rose last month by less than expected. Excluding food and energy, U.S. PCE index rose 0.3% in February after the prior month was also revised down. The headline PCE index climbed by the same amount, Commerce Department data showed Friday.

Easing core inflation comes as consumer spending, adjusted for prices, fell 0.1% in the reviewed month after surging an upwardly revised 1.5% at the start of the year. The decrease reflected a drop in outlays for both goods and services.

Consumer inflation across the U.S. has been cooling due to the sharp disinflation in the goods sector. However, sticky services inflation continued to keep consumer prices well above the Fed's 2% long-run target. According to Fed forecasts, inflation in the U.S. will average 3.3% this year, up from 3.1% seen in December, and won't return to its 2% target well until 2025.

PCE data influenced the U.S. dollar on Friday, with the dollar index advancing 0.36% against a basket of foreign currencies to settle the session at 102.186 after plunging to an eight-week low 101.821 prior session.

West Texas Intermediate May contract rallied $1.30 for a $75.67-per-barrel (bbl) settlement. International crude benchmark Brent for May delivery expired Friday afternoon at $79.77 per bbl, with the June contract settling the session with a $0.12-per-bbl premium. NYMEX April RBOB futures expired $0.0391 per gallon higher at $2.7005 per gallon, while the May contract narrowed its discount to the expiring contract to $0.0195 per gallon. April ULSD futures advanced $0.0526 to expire at $2.6763 per gallon, while the May futures settled the session at $2.6206 per gallon.

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