DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange (NYMEX) closest to expiration and the Brent contract on the Intercontinental Exchange settled higher Thursday, reversing early losses following the release of January U.S. retail sales data that showed consumers spent less than expected last month, pressuring the U.S. dollar.

U.S. Department of Commerce's Census Bureau reported a 0.8% monthly decline in U.S. retail sales with monthly sales of $700.3 billion, more than an expected 0.1% dip, while revising December's monthly sales increase lower to 0.4%.

Monthly sales declines were reported in furniture, home furnishing and building materials, which align with limited home sales, and electronics following the Christmas holiday. Retail sales at gas stations fell a sharp 7.5% in January, which aligns with a decline in gasoline demand from December. Data from the Energy Information Administration shows gasoline supplied to the U.S. market averaged 8.1545 million barrels per day (bpd) in January, down 529,000 bpd, or 6.1%, from December.

The U.S. dollar weakened on the retail sales report, with the dollar index falling 0.4% to a 104.2 settlement against a basket of foreign currencies. On Wednesday, the U.S. dollar index traded at a 104.875 three-month high.

Selling in the dollar was spurred, in part, by renewed sentiment for rate hikes by the Federal Reserve to begin in June which had weakened following Tuesday's hotter-than-expected inflation report from the Bureau of Labor Statistics showing the consumer price index increased a more-than-expected 0.3% in January. There remains a low probability that the Federal Open Market Committee will reduce the federal funds rate at its March meeting, and a 42% probability for a rate cut in May, according to CME Group's FedWatch Tool. The FedWatch Tool finds an 80% probability of a rate cut in June.

NYMEX March West Texas Intermediate futures settled $1.39 higher at $78.03 barrels (bbl), widening its premium against April delivery to $0.44 ahead of contract expiration on Feb. 20. ICE April Brent futures ended Thursday's session $1.26 higher at $82.86 bbl. NYMEX March RBOB futures firmed $0.0014 to $2.3183 gallon, retreating from Tuesday's $2.4134 19-week high on the spot continuous chart. March ULSD futures settled $0.0136 higher at $2.8237 gallon, the first gain this week.

The market reaction to the retail sales report countered a bearish outlook by the International Energy Agency released early Thursday, with the Paris-based agency forecasting world oil consumption to grow annually by 1.2 million bpd this year, down from a 2.3 million bpd annual growth rate in 2023.

"Global oil demand growth is losing momentum, with annual gains easing from 2.8 mb/d in 3Q23 to 1.8mb/d in 4Q23," said IEA in its monthly Oil Market Report. "A sharp drop in China underpinned an 830 kb/d decline in global oil demand to 102.1 mb/d in the last quarter of 2023."

Brian Milne can be reached at brian.milne@dtn.com.