Oil Slips, USD Recoup Losses as Traders Assess Fed Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved lower in early trading Thursday. The U.S. dollar clawed back some of Wednesday's steep losses triggered by dovish comments from Federal Reserve Chairman Jerome Powell and an outlook by the central bank for easing monetary policy this year even as core inflation is seen picking up momentum on stronger growth in the service economy.

Front-month May West Texas Intermediate futures stalled near $81 barrel (bbl), equity futures extended Wednesday's rally and U.S. dollar recouped some of Wednesday's losses as investors continued to digest a dovish shift by the Federal Open Market Committee (FOMC). The FOMC left its overnight bank funding rate unchanged at a 5.25% to 5.5% target range in line with market expectations but delivered a dovish surprise by penciling in three cuts in the federal funds rate this year despite lifting its forecast for inflation and economic growth.

Real gross domestic product growth is now expected to rise to 2.1% by the end of this year, up from 1.4% seen in December 2023, with the unemployment rate averaging 4% over the forecasted period. Interestingly, the core personal consumption expenditures index, which excludes volatile food and energy prices, is now projected to climb to 2.6%. That's higher than the 2.4% inflation reading central bank officials expected in December. A combination of higher inflation and a stronger growth trajectory is joined with the Fed's forecast for three rate cuts this year -- unchanged from December's outlook.

Speaking at a news conference Wednesday afternoon following the rate announcement, Powell said the unexpected pickup in inflation over the January and February period did not fundamentally change the Fed's outlook on the U.S. economy and monetary policy. The central bank still expects inflation to continue to cool, though more gradually than it thought three months ago.

Markets saw a rhetorical shift by the Fed as a signal towards a higher tolerance for inflation that won't stop the central bank from lowering its policy rate. Investors boosted bets for a June rate cut to a 62.4% probability Thursday morning from 54.6% seen a week ago, according to CME's FedWatch Tool.

Separately, this week's inventory report from the U.S. Energy Information Administration showed commercial crude stocks in the United States fell 2 million bbl in the week ending March 15, as refinery activity picked up following planned and unplanned maintenance and repairs while crude exports surged to a four-week high 4.881 million barrels per day (bpd).

Commercial crude stocks at the Cushing storage hub in Oklahoma were drawn down 100,000 bbl, leaving inventory nearly 15% lower year-on-year. Distillate fuel oil stocks rose 624,000 bbl in the week, bringing stocks 2% above the year-ago level for the seasonal period. Gasoline stocks, meanwhile, fell 3.3 million bbl, leaving gasoline stocks just 1.2 million bbl or 0.5% higher year-on-year. Total commercial petroleum stocks fell 6.149 million bbl to a 14-1/2 month low.

In early trading, NYMEX May WTI futures slipped $0.50 to $80.77 bbl and ICE May Brent futures dropped $0.49 to $85.47 bbl. NYMEX April ULSD futures declined $0.0369 to $2.6588 gallon, while April RBOB futures fell back $0.0231 to $2.7101 gallon.

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

Liubov Georges