DTN Oil

WASHINGTON (DTN) -- Following Wednesday's selloff triggered by concerns over the health of the U.S. banking sector, oil futures on the New York Mercantile Exchange and Brent crude traded on Intercontinental Exchange settled Thursday's session with modest gains spurred by expectations that global central banks are near the end of the current monetary tightening after the U.S. Federal Reserve signaled a pause in its rate hiking cycle.

Hours after the Federal Open Market Committee hinted at a possible halt of further interest rate increases, the European Central Bank lifted its benchmark deposit rate by 0.25%, slowing the pace from unprecedented series of 0.75% and 0.50% hikes that began last July. Although ECB President Christine Lagarde reiterated that the central bank has more ground to cover and has little appetite for pausing its rate hiking campaign, traders are betting the ECB is now near its tightening cycle and might raise rates just one more time.

Despite a somewhat hawkish stance, interest rate sensitive two-year German bond yields and the Euro fell on Thursday and money markets slightly trimmed their bets on the ECB's peak rate, which they now see at 3.65%. Traders simply expect the ECB hiking cycle won't last if the Fed stops its rate hiking campaign let alone begin cutting rates. As of Thursday morning, an overwhelming majority of investors anticipate the Fed will hold rates in the 5% to 5.25% range during June 13-14 meeting before introducing its first rate cut the following month.

In a statement released after a two-day policy meeting Wednesday, the Federal Reserve replaced previous guidance that "some additional policy firming (rate hikes) may be appropriate" to "the Committee will closely monitor incoming information, its rate hikes so far and the lags with which they affect the economy and inflation."

"That's a meaningful change, that we're no longer saying we anticipate more hikes," said Federal Reserve Chairman Jerome Powell at the press conference following the rate announcement but added that "our future policy actions will depend on how events unfold... we are prepared to do more if greater monetary policy restraint is warranted."

Inflation and the labor market have shown some signs of cooling in recent weeks but probably not enough for the central bank to declare a victory in fighting the sticky price pressures. In a report released Wednesday, Institute of Supply Management said prices paid by service providers increased by 0.1% in April as business activity expanded for the fourth straight month despite higher borrowing costs and tight credit conditions.

"Prices are coming down, but the decreases are small and not materially close to 2019 pricing. Labor in general is still an issue," said a representative from Transportation & Warehousing industry.

Combining these developments with the ongoing crisis in U.S. regional banks, the demand outlook for refined fuels in the second half of the year continues to be downgraded.

On the session, NYMEX June West Texas Intermediate futures settled little changed at $68.56 per barrel (bbl), while the international crude benchmark ICE Brent for July delivery edged higher to $72.50 bbl. NYMEX June RBOB futures firmed to $2.3259 gallon and June ULSD futures gained to $2.2387 gallon.