Oil marks back-to-back losses after Fed’s Powell sparks selloff

Price action

• West Texas Intermediate crude for April delivery
  CL.1,
  +1.27%

  CL00,
  +1.27%

  CLJ23,
  +1.27%
  fell 92 cents, or 1.2%, to settle at $76.66 a barrel on the New York Mercantile Exchange.

• May Brent crude
  BRN00,
  -0.17%

  BRNK23,
  -0.17%,
  the global benchmark, fell 63 cents, or 0.8%, to $82.66 a barrel on ICE Futures Europe.

• Back on Nymex, April gasoline
  RBJ23,
  -0.14%
  fell 0.4% to $2.6889 a gallon, while April heating oil
  HOJ23,
  +0.31%
  declined by 2% to $2.7419 a gallon.
• April natural gas
  NGJ23,
  +0.25%
  lost 5.1%, falling to $2.551 per million British thermal units.

Market drivers

Powell, in testimony before the Senate Banking Committee, warned Tuesday that interest rates would need to rise higher than previously thought to get inflation under control. He opened the door to larger interest-rate increases in coming meetings than previously expected.

See: Powell leaves door open for faster pace of interest rate rises at March meeting

In testimony before a House committee Wednesday, the Fed chair said that no decision on the size of a potential rate hike in March has been made.

Powell’s comments before the Senate Tuesday “sent the clear message that economic data in the near term will be critical for the decision-making process on the pace of future rate hikes and eventually the terminal rate,” said Tyler Richey, co-editor of Sevens Report Research. That left traders focused on Wednesday’s labor-market reports, he told MarketWatch.

“While there was favorable evidence of slowing wage growth in the ADP data, both of this morning’s employment releases pointed to a still healthy and resilient labor market,” he said. That “bolsters the case for continued aggressive policy by the Fed, and that elevates risks of a sharp economic slowdown later in the year.”

“A potentially deep recession in the quarters ahead would clearly be a bad economic environment for oil and the refined products, as consumer demand would be hit hard,” said Richey.

Powell’s Tuesday remarks sent shivers through financial markets. Short-term Treasury yields surged, lifting the U.S. dollar, while stocks fell.

Read: Bond-market recession gauge plunges to triple digits below zero and reaches fresh four-decade milestone

Inventory data

The Energy Information Administration on Wednesday reported that U.S. crude inventories fell by 1.7 million barrels for the week ending March 3. The EIA had previously reported weekly crude supply increases for 10 weeks in a row.

On average, analysts forecast an increase of 700,000 barrels, according to a survey by The Wall Street Journal. The American Petroleum Institute late Tuesday reported a 3.8 million-barrel decline in U.S. crude inventories for last week, according to a source citing the data.

Crude stocks at the Cushing, Okla., Nymex delivery hub declined by 900,000 barrels for the week, the EIA said.

“The report yielded the first draw to both commercial inventories and at Cushing this year,” said Matt Smith, lead oil analyst for the Americas at Kpler. “The draw at Cushing comes after nine consecutive builds — a sign of health on the U.S. Gulf Coast amid strong exports and rebounding refining activity.” 

The EIA report showed a weekly inventory decline of 1.1 million barrels for gasoline, while distillate supplies edged up by 100,000 barrels. The analyst survey had forecast inventory declines of 1.4 million barrels for gasoline and 1 million barrels for distillates.

The EIA data included a downward adjustment to crude stocks of 384,000 barrels per day for the week ending March 3. That followed a 2.266 million-barrel upward adjustment the week before.

“The move from a massive positive adjustment to a small negative adjustment not only helps confirm that last week’s reported record pace of exports was drastically overstated, but also points to an underestimation of exports in the weekly data released today,” Troy Vincent, a senior market analyst at DTN, told MarketWatch.

Kpler’s Smith pointed out that crude exports topped 4.5 million barrels a day “for the first time on our records — a sign of things to come this month amid strong buying interest from Asia.” 

Also read: EIA expects lowest first-quarter natural-gas consumption in 5 years