WTI Falls 7% as Bearish Economic Data Trigger Demand Fears

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session with sharp losses, sending the West Texas Intermediate April contract below $60 barrel (bbl) after downbeat employment and retail sales data in the United Sates triggered renewed concerns over the strength of fuel demand in the world's largest economy even as states head into the reopening stage this spring.

On the session, WTI April futures lost nearly $5 to settle at the lowest price point since March 3 at $60 bbl, trading at a $58.20 five-week low on the spot continuous chart post settlement. ICE Brent May contract declined $4.72 to a $63.28 bbl settlement, and on an intraday basis, fell to a $61.45 five-week spot low. NYMEX April ULSD futures plummeted 12.19 cents or 8% to settle at $1.7842 gallon, and on an intraday basis fell to a five-week spot low at $1.7437 gallon. April RBOB futures declined 10.3 cents for a $1.9441 gallon settlement, with an intraday session low at $1.8971 closing the seasonal gap on the spot continuous chart carved out with the expiration of the March contract on Feb. 26.

Thursday's losses in the petroleum complex were the steepest since at least September 2020 as traders reassessed the shape of fuel demand in the world's largest economy. Weekly unemployment claims missed the mark on Thursday, showing the number of Americans filing for the benefits increased last week toward 800,000 versus expectations of a decline to 700,000. What's more surprising, large states of Texas, California, and New York led the nationwide toll in new unemployment claims despite easing of quarantine restrictions and reopening businesses within their borders.

Downbeat unemployment data coincides with worse-than-expected reading on February's retail sales, down 3% from the previous month and a decline in U.S. industrial production last month, 2.2% lower versus January's levels. Although analysts attribute the recent weakness in economic activity to the frigid winter weather across parts of the country, it still raises concerns over the economy's health at the cusp of reopening.

Latest demand data might offer some clues. Energy Information Administration reported Wednesday gasoline use during the week ended March 12 declined 284,000 barrels per day (bpd) to about 12% below last year's levels at 8.442 million bpd and demand for distillate fuels fell a steeper 459,000 bpd to 4.028 million bpd, still holding above pre-pandemic levels.

Internationally, European Union is now facing a "third wave of contagion" and fresh delays in vaccine rollouts after a host of EU countries suspended the use of the AstraZeneca vaccine, prompting fresh restrictions on businesses and social mobility. This week, Italy, and Poland reinstated nationwide lockdowns, with France and Germany pausing reopening plans.

The recent spike in the viral spread is thought to be triggered by new variants of the coronavirus that are seen by the medical community as more contagious and deadly. The New England Journal of Medicine this week found that the AstraZeneca vaccine is not effective against the South African mutation, further undermining the confidence in the troubled vaccine.

"Renewed lockdowns, stringent mobility restrictions and a rather slow vaccine roll-out in Europe have delayed the anticipated rebound until the second half of the year," said the International Energy Agency on Wednesday.

The Paris-based energy watchdog estimates the first quarter demand forecast would fall by 1 million bpd from already low fourth quarter 2020 baseline. For the year, the agency expects demand to recover about 60% of the volume lost to the pandemic in 2020 to average 96.4 million bpd.

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

Liubov Georges