DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange settled Wednesday's session lower on profit-taking following recent gains, shrugging off a supportive inventory report from the U.S. Energy Information Administration (EIA) and a downshift in the U.S. dollar index in response to the Federal Open Market Committee's (FOMC) outlook.

FOMC concluded its two-day policy meeting Wednesday afternoon, leaving the federal funds rate unchanged in a 5.25% to 5.5% target range -- a move widely expected by the market.

"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," FOMC said in a statement Wednesday afternoon.

Along with the rate announcement, the central bank updated economic projections for this year, forecasting stronger Gross Domestic Product (GDP) growth, a slightly lower unemployment rate and higher core Personal Consumption Expenditures (PCE) inflation.

Real GDP growth is now expected to rise to 2.1% by the end of this year, up from 1.4% in December 2023, with the unemployment rate averaging 4% over the forecasted period. Interestingly, core PCE, which excludes volatile food and energy costs, is now projected to climb to 2.6%. That's higher than the 2.4% that central bank officials expected in December.

Despite forecasting higher core inflation, Federal Reserve officials still see three rate cuts this year, expecting the federal funds rate to end 2024 at 4.6% -- unchanged from December's projections.

The combination of stronger growth, an uptick in the inflation outlook and three rate cuts prompted the market to see a dovish shift by the Fed that might signal a higher tolerance for underlying inflation. In reaction, U.S. dollar took a 4.2% nosedive against a basket of foreign currencies to settle the session at 103.046 and stocks on Wall Street rallied to record highs as investors digested the Fed's new economic forecast.

Wednesday's move lower in the oil complex also comes despite a mostly supportive inventory report released midmorning by the EIA showing total U.S. oil and petroleum products inventories were drawn down 6.149 million barrels (bbl) to a 14 1/2-month low. Commercial crude oil inventories declined 2 million bbl last week to 445 million bbl, with stocks about 3% below the five-year average.

The larger-than-expected crude draw was realized as domestic refiners raised run rates for the fourth consecutive week to the highest level since early January at 87.8% of capacity, while crude exports surged to a 4.881 million barrels per day (bpd) four-week high. Gasoline inventories declined 3.3 million bbl to 230.8 million bbl, 2.4% below the seasonal five-year average.

On the session, NYMEX April WTI futures expired $1.79 lower at $81.68 bbl, with May WTI narrowing its discount against the expired contract to $0.41 bbl. ICE May Brent futures dropped $1.43 to settle at $85.95 bbl. NYMEX April ULSD futures declined $0.0650 to $2.6957 gallon, while April RBOB futures fell back $0.0290 to $2.7332 gallon.

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