DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) powered higher during Wednesday's afternoon session, with U.S. dollar rapidly losing ground against foreign currencies after the Federal Open Market Committee (FOMC) concluded its final policy meeting of 2023 with a clear signal towards easing monetary policy next year, sharply diminishing the odds of a demand-sapping economic slowdown in 2024.

The median estimate of FOMC members in the newly released Summary of Economic Projections implies the central bank will cut the federal funds rate at least three times next year. This would bring the key borrowing rate between banks closer to 4.6% towards the end of 2024 from the current target range of 5.25% to 5.5%.

The pivot was more dovish than many on Wall Street expected, triggering a major rally in U.S. equity markets and sell-off in the U.S. dollar index. U.S. dollar, which has an inverse relationship with WTI futures, nosedived 0.95% against a basket of foreign currencies to a 102.848 two-week low. Money markets upped their bets for a more aggressive rate-cutting cycle next year from five 0.25% cuts in 2024 to six cuts.

In his news conference following the FOMC's policy decision, Federal Reserve Chairman Jerome Powell did not push back against the narrative of cutting interest rates, adding that "the committee has begun discussing reducing policy rate next year."

"We are aware of the risk that we could hang on too long on rates. We're very focused on not making that mistake," he said.

The message of cutting interest rates next year comes despite November's inflation report showing inflation in services is proving sticky as we near the end of 2023. So-called "super-core inflation," which includes shelter and services categories, rose to 0.5% from October's 0.3% reading, signaling the consumer-powered sectors of the economy continue to outperform. In November, Americans paid more for rent, food, airline tickets and medical care services.

Wednesday's weekly inventory report from the Energy Information Administration lent support for the oil complex, revealing a larger-than-expected drawdown from U.S. commercial crude oil inventories along with a modest build in gasoline supplies as refiners unexpectedly pulled back on run rates.

Gasoline stockpiles rose a modest 400,000 barrels (bbl) during the week ended Dec. 8 compared with expectations for a 1.2 million bbl increase as demand for motor fuel improved to a five-week high 8.859 million barrels per day (bpd). On a four-week average basis, gasoline demand averaged 8.5 million bpd, which is 2.5% above last year's consumption rate.

Distillate fuel consumption, however, continues to disappoint, remaining below 4 million bpd for a third consecutive week through Dec. 8, which is just below year-ago levels. Distillate stockpiles were built by a larger-than-expected 1.5 million bbl in the reviewed week following a combined 6.5 million bbl build in the prior two weeks. Jet fuel stocks fell 1.1 million bbl.

Commercial oil stockpiles, meanwhile, decreased by 4.3 million bbl during the week ended Dec. 8, marking the second consecutive weekly draw. At 440.8 million bbl, U.S. crude oil inventories are about 2% below the five-year seasonal average.

At settlement, WTI January futures on NYMEX gained to $69.47 bbl, up $0.86, with the international crude benchmark Brent contract for February advancing $1.02 to $74.26 bbl. NYMEX RBOB January futures added $0.0452 to $2.0249 gallon and NYMEX ULSD futures for January delivery gained $0.0407 to $2.5481 gallon.

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