DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange rebounded modestly from 16-month lows hit Wednesday after the Federal Open Market Committee signaled a pause in the current monetary policy cycle after hiking interest rates for the tenth consecutive time as the broader economy flashes signs of a deeper downturn, with the labor market cooling and consumer spending weakening.

The Federal Reserve raised interest rates by a quarter percentage point Wednesday, in line with market expectations, to a 5%- 5.25% range but signaled its most aggressive rate-hiking campaign in decades may now be history. In a statement released after a two-day policy meeting, the FOMC replaced the 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 victory in fighting sticky price pressures. In a report released Wednesday, the 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 the Transportation & Warehousing industry.

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

On Wednesday, the U.S. Energy Information Administration released its weekly inventory report, showing gasoline consumption declined by 9.4% to 8.6 million barrels per day (bpd) ahead of the peak summer driving season. As a result, gasoline stocks rose by 1.7 million barrels (bbl) to 222.9 million bbl, compared with forecasts for a 1.2-million-bbl drop. That's a headwind for the market because gasoline was starting to look like the bright spot in the oil complex. Demand for middle distillates climbed by a modest 144,000 bpd from to 3.872 million bpd, still 2.9% against the five-year average. Diesel consumption has remained below 4 million bpd each week so far this year except for two.

Distillate stockpiles fell by 1.2 million bbl to 110.3 million bbl, the EIA report showed, compared with expectations for a 1.1-million-barrel drop.

In the crude complex, commercial crude oil stockpiles fell for the third straight week through April 28, down by 1.3 million bbl last week to 459.6 million barrels, and are now about 2% below the five-year average, the EIA said. Markets have mostly expected crude stockpiles to fall by 1.2 million bbl from the prior week.

The decline came despite a 2-million-barrel transfer of crude oil last week from the nation's Strategic Petroleum Reserve to the commercial side. Similar sales will continue through June, according to the Energy Department, which is conducting the transactions.

Oil stored at the Cushing, Oklahoma, hub -- the delivery point for West Texas Intermediate, increased by 541,000 bbl from the previous week to 33.6 million bbl, the EIA said in its weekly report. U.S. crude oil production increased by 100,000 bpd from the previous week to 12.3 million bpd, according to the EIA. The crude draw was realized despite domestic refiners scaling back run rates to 90.7%, processing 98,000 bpd less than the previous week's average.

Near 7:30 a.m. EDT, NYMEX June West Texas Intermediate futures traded little changed near $68.52 bbl, while the international crude benchmark ICE Brent for July delivery edged higher to $72.46 bbl. NYMEX June RBOB futures softened $0.0062 to $2.3159 gallon, and June ULSD futures traded little changed near $2.2314 gallon.