Oil Futures End Higher

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher Wednesday afternoon, rallying alongside equities and other commodities as the dollar slumped to a three-month low on growing hope the U.S. federal funds rate won't be raised anytime soon amid slowing global economic growth.

"The oil [price] move today would seem to make little sense based on the API and EIA inventory data," said Tom Bentz, head of energy derivatives at ABN AMRP Clearing Chicago LLC. "But I believe it has more to do with the weakness today of the U.S. dollar. Also, technical forces since crude dipped below $30 again and held."

Others agreed.

"The combination of a diminishing prospect for a U.S. rate hike along with a shocking drop in ExxonMobil profits is giving the market a boost," said analyst Phil Flynn at Price Futures. "When the big man of big oil is being forced to make major cuts it will be only a matter of time before global oil production starts to peak."

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NYMEX March West Texas Intermediate crude futures settled $2.40 or 8% higher at $32.28 bbl. April Brent oil futures on the IntercontinentalExchange advanced $2.32 or 7% to $35.04 bbl at settlement.

The NYMEX March ULSD futures contract jumped 6.77cts or 6.7% to a $1.0786 gallon settlement. NYMEX March RBOB futures were the weakest segment of the complex, up 1.29cts or 1.9% to a $1.0137 gallon settlement, reversing off a fresh seven-year low on the spot continuation chart of $0.9670 gallon.

On Wall Street, the Dow Jones Industrial Average and S&P 500 Index both rallied while the dollar plummeted to a level last seen in early November 2015 following the Fed comment.

William Dudley, president of the Federal Reserve Bank of New York, said economic conditions have tightened since the Fed raised rates in December, and monetary policymakers will have to take that into consideration as they try to decide whether to continue raising rates.

Dudley's comment suggesting that rates won't be raised anytime soon followed the release of weak U.S. nonmanufacturing data, and it gave bullish traders an excuse they have been looking for to rally the oil market after the recent slump. The market was oversold after WTI dropped below $30 bbl.

Some investors expect WTI crude prices to head back to $50 bbl by the end of 2016, citing a forecast by the International Energy Agency that non-OPEC crude oil supply would fall by 600,000 bpd. The Energy Information Administration also projects a drop of 620,000 bpd in U.S. crude production by the end of this year.

The oil market was provided support overnight after Russia reiterated it was open to pursing a deal with OPEC to cut production if members of the cartel can come together on the issue. However, a bearish weekly oil supply report issued midmorning by the Energy Information Administration prompted a brief dip in oil prices before the main rally got underway on the dovish comments from the senior Fed official.

The EIA report showed crude stocks soared 7.8 million bbl in the week-ended Jan. 29, about double the 3.0 million bbl supply build expected. Gasoline stocks rose 5.9 million bbl, doubling the expected 2.2 million bbl. Distillate supplies were drawn down 776,000 bbl instead of holding steady as forecast.

George Orwel can be reached at george.orwel@dtn.com

(CZ)

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