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Oil futures fall on stronger dollar as Fed Chairman Powell testifies

New York — Oil futures weakened Tuesday, pulling NYMEX April crude 90 cents lower to $63.01/b, pressured by a stronger dollar and weaker equities as Federal Reserve Chairman Jerome Powell testified before Congress in Washington.

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Powell's debut testimony on monetary policy and the state of the US economy was highly anticipated, as traders tried to get a sense about the Fed's likely path this year on interest rates.

Judging from the market reaction, one of the takeaways from Powell's testimony was his confidence in the economic outlook.

In prepared remarks, Powell said: "Some of the headwinds the US economy faced in previous years have turned into tailwinds," noting stimulative fiscal policy and firm demand for US exports.

Powell's tone boosted the implied odds the Fed will raise interest rates four times this year, versus three times.

The yield on the 10-Year US Treasury rose back above 2.9%, the US Dollar Index nearly reached 90.5 points and the Dow Jones Industrial Average flipped into negative territory.

This risk-off behavior weighed on oil futures, which sank further around midday Tuesday as Powell spoke.

NYMEX April crude traded as low as $62.72/b at one point. ICE April Brent touched an intraday low of $66.41/b and settled 87 cents lower at $66.63/b.

The oil complex has been closely intertwined with financial markets this year. Crude futures hit three-year highs in late January when the Dow set an all-time high, and then pared declines alongside the stock market.

Investors rotating money away from "risky" assets, like oil, and toward safe havens likely contributed to the coordination across asset classes that had been absent from the market.

The oil market has been more focused on supply as the key price driver, with the spotlight squarely on the role of US shale producers and OPEC's coordinated output cut.

A belief that economies around the world have entered a period of synchronized growth in 2018 for the first time in a decade -- coupled with a weak dollar -- revived the significance of demand for oil prices.

That narrative was upended in the first half of February, but a degree of stability since then has calmed nerves, allowing oil futures to make a V-shaped recovery the last two weeks.

Ryan McKay, commodity strategist at TD Securities, said the dollar should reverse lower and risk appetite is returning to the market, both of which are supportive for oil.

"If you listen to Powell, he's bullish on the US economy. And if he's bullish, then that's good for oil demand. Today we're just seeing the reaction from the short-term dollar dynamics," McKay said.

Refined product futures also fell Tuesday. NYMEX March ULSD settled 2.29 cents lower at $1.9630/gal, while NYMEX March RBOB fell 2.33 cents to $1.8034/gal.

--Geoffrey Craig,
--Edited by Keiron Greenhalgh,