DTN Oil

WASHINGTON (DTN) -- Heightened volatility in financial markets and sustained gains in the U.S. dollar index sent oil futures contracts on the New York Mercantile Exchange and Intercontinental Exchange modestly lower in early trade Thursday as investors await the release of the fourth quarter U.S. gross domestic product estimate and weekly jobless claims for additional clues on the pace of the economic recovery in the United States.

The U.S. Dollar Index, which measures the greenback against other major currencies, rose to a 10-session high 90.855 from a January low of 89.165, suggesting investors are moving away from risk-on trade to the safety of the U.S. currency. Financial markets have been rocked by reports of retail investors waging a full-on attack on hedge fund short sellers, exemplified in GameStop stock "short-squeeze." The VIX, a measure for market volatility, spiked 49.8% in overnight trading to 34.38, indicating another rocky session for global stocks.

Near 7:30 a.m. ET, futures tied to the Dow Jones Industrial Average suggest only a modest decline at the opening bell after plummeting more than 600 points on Wednesday in what became the worst sell-off in nearly three months. S&P 500 futures were pricing in for a 12-point pullback.

NYMEX West Texas Intermediate March futures declined 10 cents to near $52.77 barrel (bbl), while the prompt-month Brent contract was little changed at $55.79 bbl before expiration Friday afternoon. Brent April futures expanded its discount to the expiring contract to 36 cents. NYMEX February ULSD futures were flat near $1.6080 gallon, with the next-month delivery March contract trading near parity. NYMEX February RBOB futures slipped 0.20 cent to $1.5751 gallon, with the March contact narrowing its discount to the front-month contract to 0.57 cent. Both contracts expire Friday afternoon.

On the economic calendar Thursday is the key reading identifying U.S. economic performance in ending 2020, with the advanced estimate for fourth quarter gross domestic product scheduled for an 8:30 a.m. ET release expected to show 4.1% annual growth compared to 33.4% expansion in the third quarter. Personal consumption expenditures are expected to rise a modest 3% versus the third quarter's 41% spike.

In prepared remarks delivered Wednesday afternoon, U.S. Federal Reserve Chairman Jerome Powell warned that the pace of economic activity and employment have moderated in recent months, with weakness "concentrated in the sectors most adversely affected by the pandemic."

The U.S. labor market lost 140,000 jobs in December, according to data from U.S. Bureau of Labor Statistics, with job losses concentrated in the leisure and hospitality sector. The number of Americans filing for first-time unemployment benefits are expected to have remained near 900,000 during the week ended Jan. 23, showing little improvement early in the new year.

Federal Open Market Committee, meanwhile, kept their target range for the federal funds rate unchanged near 0% and pledged to continue with asset-purchasing program to a tune of $120 billion for Treasury and mortgage-backed securities each month.

Despite heavy losses in broader markets, oil futures were supported by a nearly 10 million bbl decline in U.S. commercial crude oil inventories during the week ended Jan. 22 reported by the Energy Information Administration on Wednesday. Demand for distillate fuels jumped to the highest weekly rate since early March at 4.3 million barrels per day (bpd), while motor gasoline supplied to the U.S. market lagged far behind its precrisis level at 7.833 million bpd. With historically high unemployment and a slowing economic recovery, U.S. gasoline consumption is likely to remain under pressure through the first quarter, and until consumers gain confidence from vaccination programs and business re-openings across large U.S. states.

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