Oil Futures Rally on Supply Data

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- During a fast-paced session punctuated with industry and macroeconomic data, Washington uncertainty and a possible Brexit deal, nearest-delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied Wednesday after two sessions with a decline.

NYMEX February West Texas Intermediate futures rallied $1.10 to $48.12 per barrel (bbl), with ICE February Brent gaining $1.12 on the session to a $51.20-per-bbl settlement. NYMEX January ULSD futures settled 3.59 cents higher at $1.4975 per gallon, and January RBOB futures moved up 4.25 cents to settle at $1.3820 per gallon.

While holding below prior Friday's multi-month highs, oil futures accelerated gains late morning into early afternoon after the Energy Information Administration reported weekly inventory declines from commercial stores of crude oil, gasoline and distillate fuel, and an increase in implied demand for gasoline and diesel. The bullish report contrasted with bearish estimates from the American Petroleum Institute released late Tuesday that, along with a potential veto by U.S. President Donald Trump on a massive spending bill that includes relief aid for those financially harmed by the pandemic, initially weighed on oil futures overnight.

Three highlights from the EIA report include an improvement in demand for diesel fuel, which on a four-week basis narrowed a year-on-year decline from 2.8% to 1.7%, with distillate fuel supplied to the U.S. market averaging 3.838 million barrels per day (bpd) during the four weeks ended Dec. 18. Cumulatively in 2020, implied distillate demand has averaged 3.694 million bpd, down 344,000 bpd or 8.5% compared with a year ago.

Second, a 1.1 million-bbl draw in gasoline inventory lowered stocks to 237.8 million bbl as of Dec. 18, moving below the year-ago supply level for the first time since early October. Implied gasoline demand edged up a modest 47,000 bpd to 8.022 million bpd last week, moving above 8 million bpd for the first time since before Thanksgiving Day, but at 8.149 million bpd is down 1.205 million bpd or 12.9% in 2020 against a year ago.

Thirdly, combined U.S. exports of crude and oil products increased 2.225 million bpd or 33.8% from a 25-month low in early December to 8.813 million bpd, an eight-month high.

A pair of macroeconomic reports spurred optimism for fuel demand, with U.S. durable goods orders increasing a more-than-expected 0.9% in November from an upwardly revised October reading to 1.8% showing healthy demand for durable manufactured goods. The Census Bureau noted November marked the seventh consecutive month with an advance in new orders.

At the same time, the Department of Labor this morning reported an 89,000 decline in initial filings for unemployment insurance during the week-ended Dec. 19, with the market expecting first-time filings to have been little changed on the week. Still, 803,000 initial claims filings and 5.337 million continuing claims indicates a long road to recovery for the U.S. economy.

After months of wrangling, U.S. Congress this week approved an $892 billion COVID-19 relief bill tied with $1.4 trillion omnibus legislation that would fund the government through Sept. 20. However, Trump blasted what he defined as wasteful spending that included payments to foreign governments and special interests, and derided as too cheap $600 payments to individuals, saying Congress needed to increase direct payments for individuals to $2,000 and to $4,000 for couples.

It's not clear if Trump will veto the legislation, which passed the House with 359 votes to 53 no votes, and the Senate in a 92-6 vote. The bill automatically becomes law in 10 days without the president's signature or veto once enrolled, which means the presiding officers of the two chambers, House majority leader Nancy Pelosi and Senate majority leader Mitch McConnell, need to sign the legislation. The current legislative session ends Jan. 2, 2021.

Without passage into law, the government shuts down at midnight Dec. 28.

Wednesday afternoon, Trump vetoed the National Defense Authorization Act, which came with a $740 billion price tag, calling the measure a gift to China.

Markets were also buoyed by a potential Brexit deal, another measure going down to the wire, while the border between the United Kingdom and France was opened after being shut earlier this week after coronavirus cases in the UK spiked amid a new variant of COVID-19. The pound rallied on the potential breakthrough while the U.S. dollar softened. Major U.S. equity indices advanced, with Dow Jones Industrials up more than 200 points late afternoon.

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

Brian Milne