DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange extended lower in pre-inventory trading Wednesday, with West Texas Intermediate sliding below $70 barrel (bbl) for the first time since late March after softer-than-expected macroeconomic data in the United States and elsewhere fueled fears of a deeper economic downturn this year, hurting demand for refined fuels.

Oil's move lower comes despite the American Petroleum Institute reporting on Tuesday U.S. commercial crude oil inventories declined by 3.939 million bbl during the week ended April 28, compared with forecasts for a draw of 1.2 million bbl. Stocks at the Cushing, Oklahoma, tank farm -- the New York Mercantile Exchange delivery point for West Texas Intermediate futures -- rose 700,000 bbl. Further details of the report revealed gasoline inventory added 400,000 bbl as of April 28, missing an expected 1.0-million-bbl draw. API reported a decrease of 1.0 million bbl in distillate inventory versus an expected decline of 700,000 bbl.

Next, oil traders are awaiting the release of official inventory data from the U.S. Energy Information Administration scheduled for 10:30 a.m. EDT release.

In financial markets, investors are bracing for yet another rate increase announcement from the U.S. Federal Reserve that concludes its two-day policy meeting at 1:30 p.m. EDT. Over 96% of investors anticipate the Fed to raise rates by a quarter percentage point today to a 5% to 5.25% range -- the highest level since 2007. The rate hike itself has been fully priced in by the markets but fears over the health of the U.S. banking sector, along with signs of a sharply slowing economy, have sent markets tumbling this week. Dow Jones Industrial fell as much as 450 points Tuesday and S&P 500 declined 1.3%, while tech-savvy Nasdaq Composite slid 1% on the session.

More evidence of a sharply slowing economy can be found in the Job Openings and Labor Turnover Survey released Tuesday that showed employment openings declining to their lowest levels since April 2021 and layoffs jumping sharply in March. Job vacancies totaled 9.59 million for the month, down from 9.97 million in February and below the median estimate of 9.64 million. Quits, which are considered a measure of confidence in the ability to leave one's job and find another, declined by 129,000 to 3.85 million, the lowest level since May 2021. A separate report Tuesday revealed U.S. orders for manufactured goods in March grew 0.9%, falling below expectations of a 1.3% increase.

Against this backdrop, investors will be looking for clues on whether the Fed will keep rates steady after the May 3 meeting, or if it will further tighten monetary policy to fight inflation.

Fed Chairman Jerome Powell will likely signal during his press conference Wednesday that interest rates would have to remain at elevated levels for an extended period and push back against market pricing of any rate cuts this year. Assuming the Fed raises rates by 0.25 percentage points this week, the market is currently pricing in a 34.6% chance of another rate hike in June and a 6.8% chance of a rate cut in June.

Near 9 a.m. EDT, NYMEX June West Texas Intermediate futures dropped back to $69.44 bbl, down $2.30 bbl on the session, while the international crude benchmark ICE Brent for July delivery fell $2.23 to $73.07 bbl. NYMEX June RBOB futures retreated $0.0514 to $2.3854 gallon, and June ULSD futures declined to $2.2366 gallon, down $0.0526 gallon.