DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended a rally into a second consecutive session on Thursday, boosted by risk-on sentiment in the financial markets following the Federal Reserve's signal of near-term rate cuts to avoid a deeper slowdown.

The oil complex this week rebounded on the back of risk-on sentiment returning to the financial markets after the U.S. central bank signaled monetary policy easing next year, lifting expectations for demand growth. Atlanta Fed's GDPNow tool upgraded its economic growth projections for the fourth quarter to 2.6% from 1.2% just a day ago following the most recent economic data releases. Retail sales posted surprise growth in November, expanding by 0.3% compared to a negative 0.1% in the prior month, underscoring the strength of the American consumer.

The Federal Open Market Committee left the federal funds rate unchanged for their third straight meeting on Wednesday, but signaled in new economic projections that the tightening of monetary policy that began in March 2022 has concluded.

"We are aware of the risk that we could hang on too long on rates. We're very focused on not making that mistake," noted Federal Reserve Chairman Jerome Powell in a news conference following the FOMC meeting.

The median estimate of FOMC members in the newly released Summary of Economic Projections implies a 75-basis point rate cut next year -- a sharp pivot from the recent narrative of "higher-for-longer." The pivot was more dovish than many on Wall Street expected, triggering a major rally in U.S. equity markets and a selloff in the U.S. dollar index.

The U.S. dollar, which has an inverse relationship with West Texas Intermediate futures, extended the recent drop against foreign currencies to settle 0.9% weaker at a 101.940 more than four-month 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 the Summary of Economic Projections, FOMC expects the U.S. economy to slow to 1.4% next year, down from 1.5% projected in their September outlook, with the unemployment rate rising to 4.1% and personal consumption expenditures, the Fed's preferred inflation index, slowing to 2.4%.

Thursday's higher move in the oil complex comes despite a rather bearish market outlook released in the morning by the International Energy Agency, suggesting continued demand destruction on the back of economic slowdown across developed economies. IEA revised its fourth quarter global oil demand growth estimate by almost 400,000 bpd, with Europe making up more than half the decline.

"The slowdown is set to continue in 2024, with global gains halving to 1.1 million bpd, as GDP growth stays below trend in major economies. Efficiency improvements and a booming electric vehicle fleet also drag on demand," said IEA in its December outlook.

At settlement, WTI January futures on NYMEX rallied to $71.58 bbl, up $2.11, with the international crude benchmark Brent contract for February advancing $2.35 to $76.61 bbl. NYMEX RBOB January futures added $0.0939 to $2.1188 gallon and NYMEX ULSD futures for January delivery gained $0.0432 to $2.5913 gallon.

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