Crude Futures Fade as Demand Recovery Lags Expectations

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Except for a modest gain by prompt-month RBOB, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session lower despite a sharp advance by equities that erased roughly half their losses from Wednesday's selloff and a weaker U.S. dollar index that reversed gains after weekly jobless claims were better-than-expected and fourth quarter gross domestic product showed the U.S. economy continued to recover in the final months of a tumultuous 2020, albeit at a slower pace.

On the session, West Texas Intermediate futures for March delivery fell 51 cents to settle at $52.34 per barrel (bbl), while the prompt-month Brent contract slipped 28 cents to $55.53 bbl before expiration Friday afternoon. Brent April futures expanded its discount to the expiring contract to 43 cents. NYMEX February ULSD futures declined 0.72 cent to $1.6017 gallon, with the next-month delivery March contract settling near parity. Exception in the complex today were nearby-month RBOB futures that held onto to earlier gains in afternoon trading, with the February contact gaining 0.58 cent to $1.5829 gallon and next-month March futures widening its discount against the expiring contract to 0.75 cent. Both ULSD and RBOB February contracts expire Friday afternoon.

Thursday's session saw another day of wild trading in financial markets, with Dow Jones Industrials roaring back with a 650-point rally before paring gains to 300 points and the S&P 500 gaining 1% after both indexes suffered the biggest selloff in three months on Wednesday. Stronger showings in equity markets were spurred, in part, by better-than-expected jobless data in the United States, with first-time unemployment claims at 847,000 during the week-ended Jan. 23 and continued applications falling below 5 million at 4.771 million for the third consecutive week through Jan. 16. Better-than-expected jobs data might suggest businesses across the country paused widespread layoffs as large states, including New York, California, and Michigan, began reopening their economies. On Wednesday, New York Governor Andrew Cuomo lifted all micro-cluster restrictions on movement and gatherings across the state, citing a "dramatic" improvement in hospitalizations and positivity rates for new infections. Following the post-holiday spike in COVID cases, the country saw a 30% decline in new infections and ramp-up in vaccination efforts on local and federal levels.

Bureau of Economic Analysis said this morning U.S. economy grew at an annualized rate of 4% during the fourth quarter, a dramatic slowdown from a third-quarter spike of 33%. For the year, real gross domestic product in the U.S. fell by 3.5% -- the worst annual contraction since the end of World War II. With pandemic-induced recession taking hold last March, demand for oil and refined products struggled to recover to its precrisis level. Demand for motor gasoline in the United States continued to trail behind the comparable year-ago pace by 9.5% in January, weighed down by a slow recovery in the labor market and coronavirus restrictions.

U.S. Federal Reserve Chairman Jerome Powell warned this week that the pace of economic activity and employment have moderated, with prevailing weakness "concentrated in the sectors most adversely affected by the pandemic."

Liubov Georges