DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange rallied in early trade Tuesday, with the front-month RBOB contact gaining as much as 2% following the announcement that New York, New Jersey, and Connecticut will lift all capacity restrictions on businesses and entertainment venues in less than two weeks, boosting expectations for higher gasoline demand this summer.

Monday's announcement marks one of the most significant steps in fully reopening New York -- a major gasoline consuming state, meaning the removal of most quarantine restrictions on restaurants, gyms, theaters, and other public venues beginning May 19. Should the pace of vaccinations stay on track, New York Governor Andrew Cuomo pledged the tri-state area would "literally, go back to normal" just ahead of the Memorial Day holiday weekend.

Recent data from the U.S. Energy Information showed four-week average gasoline demand in the United States has already reached the highest level since late August 2020 at 8.827 million barrels per day (bpd). The U.S. vaccination rate has, however, slowed to below 2.5 million doses a day last week. This slowdown along with supply-chain shortages is causing concern about decelerating economic growth in coming months, with recent manufacturing data from the Institute of Supply Management showing a slowdown in business activity despite strong demand. The ISM data reported widespread shortages of parts, material and labor coupled with soaring prices that have undercut growth for U.S. manufacturers by 4% last month.

"Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential," said Timothy Fiore, chairman of the ISM survey. What isn't a problem is demand.

Monday's gains in the oil complex were underpinned by expectations for stronger fuel demand this summer, although offset by an ongoing surge in coronavirus cases in India, the world's third largest oil consumer. The country saw 392,488 new COVID-19 infections and a record 3,689 deaths on May 1, data from John Hopkins University showed, even as parts of the country remained under lockdown.

Indian gasoline consumption may have fallen 6.3% on the month to 2.14 million bpd, the lowest level since August, according to analysts, and diesel consumption declined 1.7% on the month to 5.9 million bpd. Public health authorities said that with the pandemic in India still not having reached its peak, further downside to fuel demand should be expected over May.

Furthermore, a new variant that emerged from India has now been detected in China and Indonesia, heightening anxiety over a growing wave of new cases in Asia that could prompt increased travel restrictions and lower fuel demand. New U.S. travel restrictions to India take effect Tuesday.

In early trade, NYMEX June West Texas Intermediate futures advanced $1.08 to trade above $65 per barrel (bbl) at $65.60 bbl, with ICE July Brent rallying $1.22 to $68.80 bbl. NYMEX June RBOB futures surged 4.90 cents to a $2.1498 gallon with the gasoline contract seasonally backwardated, while June ULSD futures gained 3.95 cents to $1.9912 gallon.

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