Oil Futures Advance After Testing Support, USD Weakness

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures nearest to delivery and Brent crude on the Intercontinental Exchange registered gains Tuesday afternoon amid a technical bounce and a weaker U.S. dollar. A sluggish start to the second quarter by the U.S. economy improved the outlook for interest rate cuts later this year.

S&P Global Flash US Composite PMI released Tuesday morning showed a 1.2-point decline to a 50.9 four-month low in April. Manufacturing slipped below 50 to 49.9, indicating no growth, while activity for the service sector fell to a five-month low of 50.9.

"The U.S. economic upturn lost momentum at the start of the second quarter with the flash PMI survey respondents reporting below-trend business activity growth in April," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded."

The U.S. dollar fell 0.4% to a 105.510 eight-session low in index trading against a basket of currencies, pressured by the PMI report. West Texas Intermediate (WTI) futures moved in the opposite direction of the dollar, advancing as the dollar weakened.

The economic slowdown highlighted by the PMI data increased the probability for two 25-basis point cuts in the federal funds rate in 2024 from 51.1% on Monday to 58.8% Tuesday, according to the CME FedWatch Tool.

The Federal Open Market Committee (FOBC) will discuss monetary policy next week, but there is nearly universal agreement that central bank officials will leave the federal funds rate unchanged in its current 5.25% by 5.5% target range. The market still anticipates the first 25-basis point rate cut to occur during the FOMC's September meeting, although the odds for a rate cut in July improved.

NYMEX June WTI settled $1.46 higher at $83.36 per barrel (bbl), reversing higher after testing support at the $81.23 50-day moving average. ICE June Brent gained $1.42 with a $88.42 bbl settlement. NYMEX May ULSD futures settled $0.0188 higher at $2.5792 gallon, continuing an advance from Monday's $2.5039 19-week low on the spot continuous chart. NYMEX May RBOB futures posted a $0.0368 gain with a $ 2.7253-gallon settlement after four straight down sessions, reversing higher after finding retracement support following the March uptrend.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne