DTN Oil

WASHINGTON, D.C. (DTN) -– Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mostly higher in the early morning Thursday, with the U.S. Dollar Index holding near an eight-month low against global peers as traders awaited the release of U.S. gross domestic product for the fourth quarter and weekly unemployment claims for additional clues on demand performance.

U.S. GDP is expected to soften to 2.7% annualized growth during the fourth quarter 2022 after accelerating to 3.2% in the three months ending in September, according to data from the Bureau of Labor Statistics. The increase in the third quarter was primarily driven by gains in exports and consumer spending. Within consumer spending, an increase in services - led by health care as well as food and beverages - was partly offset by a decrease in goods -- led by motor vehicles. With that in mind, fourth quarter GDP data could be a revealing clue on the strength of U.S. consumers in the final months of the year.

Recent economic data might suggest that Americans pulled back sharply on discretionary spending, with retail sales dropping to a negative 1.1% in December and key measures on the service economy falling deep into contraction. Despite the signs of overall weakness, the Atlanta Fed's GDPNow model estimates economic growth in the fourth quarter accelerated to 3.5% as of January 20. A stronger-than-expected Q4 GDP reading could be a bullish catalyst for the markets. As of 7:30 a.m. ET, U.S. equity futures traded mixed, while the dollar index held near an eight-month low at 101.650 against its global peers, lending support for the front-month West Texas Intermediate contract. WTI futures for March delivery advanced above $81/bbl, up by $0.96 in overnight trading, and Brent March futures on ICE rallied to $87.06/bbl. NYMEX RBOB February contract edged up to $2.5995 a gallon, and front-month ULSD futures traded little changed near $3.3639 a gallon.

Limiting gains for ULSD and RBOB futures, the U.S. Energy Information Administration reported on Wednesday demand for gasoline and distillate fuels remained exceptionally weak at the start of the year. Distillate fuel oil supplied to the U.S. market -- a proxy for demand -- fell below 4 million bpd last week, some 678,000 bpd, or 14%, below last year's consumption rate. Middle distillate demand closely correlates with economic activity, with the middle of the barrel mostly consumed in industrial and commercial sectors, including construction, trucking, farming and for heating.

Manufacturing conditions in the U.S. deteriorated significantly at the start of the year, hit by rising interest rates and a lack of consumer demand. For instance, New York manufacturing activity fell this month to the lowest level since May 2020 when the economy was shut down by the COVID lockdown. On a national level, new orders across the private sector declined for the fourth successive month in January. Inflation, interest rates and customer hesitancy continued to be reported as driving the downturn.

Gasoline demand didn't fare much better at the start of the year, with the four-week average consumption falling to 7.8 million bpd as of Jan. 20, down 4.7% from the same period last year. A combination of weak fuel demand along with a slow recovery in refinery run rates pushed U.S. crude oil inventories to the highest level since June 2021. At 448.5 million bbls nationwide, crude oil stockpiles now stand 3% above the five-year average.

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