WTI below $60 as USD Hits 4-Month High, US Output Edges Up

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Following Wednesday's explosive rally triggered by an unusual traffic accident in the Suez Canal, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined early Thursday as market participants balance the risk of renewed lockdowns in the European Union and increasing U.S. shale production against the prospects of another one-month extension of production cuts from the Organization of the Petroleum Countries.

Oil futures once again reversed course and slumped nearly 2% Thursday morning as traders appear to take a cautious approach ahead of next week's meeting among OPEC+ ministers and growing uncertainty over a demand recovery in the European Union.

Germany unexpectedly reversed plans for an Easter lockdown, with Chancellor Angela Merkel placing the blame upon herself for a misstep and vowed more independency from the European Union to scale up domestic vaccine production. EU's consumer sentiment, meanwhile, advanced four basis points in March, according to the European Commission, as the economy made a surprise return to growth, led by resurgence in German manufacturing and a modest improvement across service sectors.

Domestically, investors await the latest reading on jobless claims for the week ended March 20 after the number of Americans claiming benefits unexpectedly jumped mid-March despite ongoing reopenings of large states. Also, on the economic calendar today is the third and final reading on the fourth quarter gross domestic product, expected unchanged at 4.1% and personal consumption holding steady at 2.4%. Atlanta's GDP Now Model, meanwhile, trimmed its first quarter growth forecast to 5.4% on March 24 following a string of sluggish economic data for February.

In early trading, U.S. Dollar Index pushed higher to a four-month high 92.715 against a basket of its global peers, pressuring front-month West Texas Intermediate futures below $60 per barrel (bbl). WTI May futures declined $1.34 to near $59.83 bbl and the May international crude benchmark Brent contract on ICE advanced traded near $63.24 bbl, down $1.17. NYMEX April ULSD futures slumped 3.13 cents to near $1.7943 gallon and front-month RBOB contact declined 3.38 cents or 1.7% to trade near $1.9552 gallon.

Mostly bearish inventory data from the U.S. Energy Information Administration released Wednesday further weighed on the complex this morning, with crude stocks building for a fifth consecutive week and domestic production recovering faster than expected. Data showed commercial crude oil stocks added 1.9 million bbl last week and are now 6% above the five-year average. The gain in crude supplies came even as refinery utilization rose 5.5% to 81.6%.

Gasoline inventories also gained 200,000 bbl but remained about 3% below levels normally seen this time of year. Distillate inventories rose by 3.8 million bbl and, with the home heating season wrapping up, remain 1% over five-year average.

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

Liubov Georges