DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange nearest to delivery and Brent crude on the Intercontinental Exchange fell sharply Wednesday, accelerating overnight losses following bearish weekly inventory statistics, with the contracts pressing lower overnight on concern over the cumulative effect inflation is having on fuel demand.

Inflation pressure was cited by the Federal Open Market Committee Wednesday afternoon in their statement following a two-day monetary policy meeting indicating, "The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."

As expected, FOMC maintained the federal funds rate in a 5.25% by 5.5% target range, with CME's FedWatch Tool showing a single 25-basis point rate cut in 2024 is anticipated by the market. There is a slight probability the cut will occur in September, which was widely expected a week ago. On Tuesday, the cut was seen pushed back to the FOMC's November meeting.

Data released Wednesday confirmed the reason for hesitation by central bankers in easing monetary policy, with job growth resilient and wages continuing to climb while higher costs continue to move through the supply chain.

Private payroll provider ADP released their National Employment Report for April reporting 192,000 new jobs, and revised March's job growth total up 24,000 to 208,000. April's job gains were broad-based, attesting to the strength of the economy, while annual pay increased 5% year over year.

Institute of Supply Management reported a contraction in manufacturing in April, but companies surveyed by ISM indicated the sector is stabilizing. Raw material costs increased 5.1% in April, with the price index having now gained during the past four months to 60.1% -- the highest since June 2022.

The increase in raw material costs and higher wages while the U.S. economy and labor market continue to grow are inflationary. The Atlanta Federal Reserve Bank's GDPNow indicator indicates U.S. economic growth for the second quarter at 3.3%.

Historically, economic growth drives diesel demand, but stagnation in industrial production and the knock-on effect it has on freight hauling has thwarted consumption. For the four weeks that ended April 26, the Energy Information Administration midmorning reported distillate fuel supplied to the U.S. market down 312,000 bpd or 8.2% against the comparable year-ago period. And while consumers have yet to reel back spending which is supporting economic growth, gasoline demand has been under pressure this year amid vehicle efficiency gains. EIA shows gasoline supplied to the domestic market trailing the year-ago pace during the four weeks through April 26 by 317,000 bpd or 3.6%.

EIA also reported commercial crude inventory surged 7.3 million bbl last week to a 460.89 million bbl 10-month high as exports slumped to 3.918 million bpd and crude inputs at U.S. refineries declined 230,000 bpd to a 15.641 million bpd seven-week low.

June West Texas Intermediate and July Brent fell to seven-week lows on their respective spot continuation charts of $78.83 bbl and $83.29 bbl. WTI settled $2.93 lower at $79 bbl – the first settlement below $80 bbl since March 13, and Brent ended at $83.44 bbl, down $2.89.

June RBOB futures also pressed to a seven-week low on a spot continuous basis, trading at $2.5739 gallon before settlement at $2.5774 gallon, down a sizable $0.1138. June ULSD futures sunk to a $2.4458 10-month low on the spot continuation chart before settling the session $0.0757 lower at $2.4519 gallon.

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