DTN Oil

WASHINGTON (DTN) -- While the prompt month ULSD contract was again an outlier with a lower close, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, sending the front-month gasoline contract to a record-high settlement of $3.7590 gallon following the release of a strong employment report in the United States that has boosted optimism for robust demand growth for the motor transportation fuel this summer despite surging inflation and a record surge in fuel prices.

On the session, NYMEX June RBOB futures rallied 10.03 cents or 2.7% for a record-breaking settlement on the spot continuous chart of $3.7590 gallon, while on an intraday basis reached a fresh eight-week high $3.7970, with the record high at $3.8904 gallon traded on March 7. In contrast, NYMEX June ULSD futures settled below $4 gallon for the first time since April 22, down 8.7 cents at $3.9543 gallon.

Crude contracts pared some of their morning gains with NYMEX West Texas Intermediate June futures settling just below $110 bbl after hitting an intrasession high of $111.18 per barrel (bbl). The international crude benchmark Brent contract for July delivery settled at a six-week high $112.39 bbl, up $1.49 or 1.6% from Thursday's session close.

U.S. economy added 428,000 new jobs in April, narrowly beating expectations for a 400,000 gain, while the unemployment rate remained unchanged at 3.6%, just 0.1% above the February 2020 50-year low. April marked the 12th consecutive month of job growth above 400,000, which bodes well for gasoline demand in the United States as a strong labor market typically underpins gains in fuel consumption.

Government data this week showed gasoline demand in the United States increased for the third consecutive week through April 29 to 8.856 million barrels per day (bpd), while demand for middle distillates jumped to a seven-week high 3.956 million bpd. Stocks of middle distillates in the United States stand at a critically low level at 104.942 million bbl, roughly 22% below the five-year average. Inventories are expected to fall even further to a projected low of just 102 million bbl before the middle of the year, with a possible range of 97 million to 105 million bbl, according to analysts.

Distillate fuels are mostly used in road and rail freight, manufacturing, construction, farming, mining, and oil and gas extraction, so consumption is very sensitive to economic activity.

Against this backdrop, European Commission this week proposed an outright ban on imports of Russian fuels, such as distillates, beginning early next year and crude oil imports by October. The decision will most certainly tighten the world market even further with no immediate replacement for the Russian oil currently available on the global market. The proposal met stiff opposition from Hungary that is heavily dependent on Russian oil imports, with the country's Prime Minister, Viktor Orban, comparing the oil embargo to a nuclear bomb being dropped on the Hungarian economy.

"We see no plan or guarantees in the current proposal to manage even a transition period nor what would guarantee Hungary's energy security," said Zoltan Kovacs, a spokesman for the Hungarian government.

Acknowledging the risks, German Economic Minister Robert Habeck said he cannot guarantee regional supplies will not be disrupted but believes the EU transitional period is adequate. He added the share of Russian crude in German imports has already fallen to about 12% from more than a third before the beginning of the Russian invasion on Feb. 24.

The move dramatically raises stakes with Moscow as the European Union -- the single largest consumer of crude and fuel from Russia, seeks to pressure Russian President Vladimir Putin to stop his aggression against Ukraine. In 2021, almost two-thirds of the bloc's crude oil imports came from Russia.

Liubov Georges can be reached at liubov.georges@dtn.com