Oil, Equities Climb after Powell Signals Slower Rate Hikes


   
   WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York 
Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced 
on Wednesday in line with rallying equity markets after Federal Reserve 
Chairman Jerome Powell hinted at a downshift in the pace of rate hikes that 
could come as soon as December to, in part, assess the lagged effects of 
monetary tightening on aggregate economic activity.

   "It makes sense to moderate the pace of our rate increases as we approach 
the level of restraint that will be sufficient to bring inflation down," Powell 
said in a speech at the Brookings Institution in Washington, D.C. this 
afternoon.

   The assessment signaled the central bank is now ready to step down from its 
steep 75-point basis increases in the federal funds rate to 50 basis points at 
its Dec. 14th meeting -- an adjustment the market has widely anticipated. 75% 
of investors expect the Federal Open Market Committee will raise the federal 
funds rate by 50 basis points next month compared with 25% who bet on a larger 
rate hike. The FOMC has raised rates six times so far this year, with four of 
those increases by a historically large 75 basis points.

   Powell cautioned however, the central bank would continue to raise rates 
well into 2023 as it needs "more evidence that inflation is actually 
declining," adding that "by any standard, inflation remains much too high."

   The Fed has walked a fine line in recent weeks, trying to signal that, while 
it will soon back off the ultra-aggressive pace of rate hikes, the battle 
against inflation is far from over.

   The labor market is still resilient in the face of rising interest rates, 
with the latest Job Openings and Labor Turnover Summary report showing new job 
openings remained above 10 million in October, although down by 353,000 from 
the previous month. Friday's nonfarm employment report is expected to show 
200,000 new jobs were added this month, down from the 261,000 new positions 
reported in October, although still a strong growth rate.

   Supportive economic data coupled with Powell's dovish comments sent the U.S. 
dollar index lower against a basket of foreign currencies to settle at 105.897, 
while lending support to West Texas Intermediate futures.

   The WTI January contract advanced $2.35 to settle at $80.55 bbl. January 
Brent futures on ICE expired $2.40 higher at $85.43 bbl, and the February 
contract expanded its premium against the expiring contract to a $1.54 
contango. December RBOB futures on NYMEX gained to $2.4185 gallon in its last 
day of trading, with the January contract settling at $2.3847 gallon after a 
$0.0969 advance. December ULSD futures added $0.0670 to expire at $3.3629 
gallon, and the next month contract gained to $3.3635, up $0.1196 in afternoon 
trading.

   Further supporting the oil complex, U.S. Energy Information Administration 
reported midmorning Wednesday commercial crude oil inventories declined by a 
massive 12.581 million bbl last week -- the largest weekly change so far this 
year. The large drawdown was accompanied by a 1.4 million bbl withdrawal of 
crude oil from the Strategic Petroleum Reserve. There was little change in 
crude inventory at the Cushing storage hub in Oklahoma, where stocks edged a 
modest 415,000 bbl lower to a 24.315 million bbl four-month low. The steep 
drawdown, likely partly influenced by ad valorem taxes on inventory held at 
year-end in Texas and Louisiana, occurred as the national refinery run rate 
spiked 1.3% to 95.2% of capacity, the highest utilization rate since August 
2019. PADD 3 Gulf Coast refineries drove the big increase in runs, with 
utilization jumping 2.3% to 98.2% of capacity, a four-year high. Crude inputs 
at refineries increased 228,000 bpd or 1.4% to 16.638 million bpd, a five-month 
high.

   The surge in refinery production, however, boosted gasoline and distillate 
fuel inventories during the week-ended Nov. 25, with gasoline stocks building 
by 2.8 million bbl to 213.8 million bbl, and distillate stocks up 3.5 million 
bbl to 109.1 million bbl. Despite those builds, total U.S. stocks not including 
the SPR were drawn down 8.8 million bbl to 1.211 billion bbl, a four-month low.

    

    

   Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, wwww.dtn.com.




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