DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session with modest gains, although up enough to send the U.S. crude benchmark to a fresh nine-month high. The gains came after the Federal Reserve upgraded its economic projections for both 2020 and 2021, forecasting that the deployment of the coronavirus vaccine would accelerate U.S. economic growth in 2021.

On the session, NYMEX January West Texas Intermediate futures gained 20 cents to settle at $47.82 per barrel (bbl), and Brent crude for February delivery advanced 32 cents to settle just above $51 per bbl. The front-month ULSD contact added 1.35 cents to $1.4779 per gallon, and January RBOB futures surged 2.61 cents or 2% to a fresh 10-month spot high at $1.3529 per gallon.

The Federal Open Market Committee concluded the final meeting of the year on Wednesday without any change to its current monetary policy, maintaining near-zero interest rates through at least 2023 and keeping its asset-purchasing program intact. The central bank did, however, make changes to its near-term forecast for the U.S. economy, which was largely attributed to accommodative monetary policy, free flow of credit and vaccine deployment that began this week. U.S. economy is now expected to contract by 2.4% in 2020 compared with September's expectation for a deeper 3.7% contraction. For the next year, Fed officials bumped their growth projections up 0.2% to 4.2% while projecting the unemployment rate to fall to 4.2% from 4.6% seen in September.

Fed's rosier outlook inspired some hopes that demand in the world largest oil consumer might recover faster than previously thought. Wednesday's inventory data showed gasoline supplied to the U.S. market, a measure for demand, improved to near 8 million barrels per day (bpd) during the week-ended Dec. 11, with traffic data suggesting motorists are hitting the road again before the Christmas holidays. Demand for distillate fuels also reversed sharply higher to above 4 million bbl, up 613,000 million bbl from the previous week. U.S. commercial crude oil inventories declined 3.1 million bbl in the reviewed week, exceeding analysts' expectations.

In the short term, however, the economy still needs fiscal help from U.S. Congress, with millions of Americans are about to lose their last coronavirus benefits and businesses are closing their doors again under pressure from state and local regulators.

U.S. retail sales fell 1.1% in November the U.S. Census Bureau reported Wednesday morning, below market consensus for a softer decline to 0.3%, with decline in retail sales realized despite the approaching holidays when consumers tend to dig deeper into their wallets. The greater-than-expected drop off does, however, boost expectations for U.S. lawmakers to pass a coronavirus relief bill before the end of the year.

Internationally, Eurozone's manufacturing data released overnight showed the fourth quarter downturn in the bloc's economy will likely be less severe than previously thought. At a 49.8 reading, Eurozone's flash composite purchasing managers' index increased nearly 5 points from November's five-month low and exceeded consensus by 8.5 points. German manufacturers, in particular, posted a strong showing of 58.6, a better-than-two-year high, while services also nudged higher from a five-month low 45 reading in November.

"The data hint at the economy close to stabilizing after having plunged back into a severe decline in November amid renewed COVID-19 lockdown measures, said Chris Williamson, chief business economist at IHS Markit.

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

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