Oil Futures Pause Rally as Fuel Demand Softens, USD Firms

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Falling from intrasession highs, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session little changed after a slew of disappointing macroeconomic data, including lower-than-expected payroll gains and slowing business activity in the service sector, stoked concern over fading momentum for the U.S. economy in the second quarter amid acute labor shortages and supply chain disruptions.

In market-on-close trade, NYMEX June West Texas Intermediate contract slipped below $66 barrel (bbl) to settle the session at $65.63 bbl after reaching a $66.76 bbl two-month spot high overnight. ICE July Brent futures settled a tad higher at $68.96 bbl. NYMEX June RBOB finished the session unchanged at $2.1513 gallon after trading at $2.1824 gallon -- the highest trade on the spot continuation chart since July 2018, while June ULSD futures fell back from 16-month spot high $2.0278 gallon to settle the session fractionally higher at $2.0025 gallon.

The U.S. Dollar Index pushed higher against a basket of foreign currencies to a 91.435 two-week high before paring the advance despite ADP's nationwide payroll report missing expectations with 742,000 jobs added in April. Bearish against expectations for a 900,000-job increase, the report still showed a labor market that is recovering along with re-openings of large U.S. states. The official employment report from the Labor Department will be released Friday morning, with consensus calling for the economy to have added at least 1 million jobs in April.

Additionally, the Institute of Supply Management reported on Wednesday business activity in service sectors unexpectedly declined 1% from a record high 64.1 index reached in March.

"Production-capacity constraints, material shortages, challenges in logistics and human resources continue to affect deliveries, slowing overall growth in services sector. However, the rate of expansion is still strong," said Anthony Nieves, chair of ISM Services Business Survey Committee.

These data points coincided with somewhat sluggish demand figures reported by the U.S. Energy Information Administration on Wednesday showing distillate demand, which correlates closely with economic activity, dropped 205,000 barrels per day (bpd) from the previous week to 4.125 million bpd. Gasoline supplied to the U.S. market, a measure for demand, remained little changed on the week at 8.864 million bpd despite ongoing re-openings of large gasoline consuming states. Gasoline stockpiles unexpectedly increased 737,000 bbl from the previous week to 235.8 million bbl compared with analyst expectations for inventories to have fallen by 900,000 bbl from the previous week.

On the bullish side, crude stockpiles dropped by 8 million bbl from the previous week to 485.1 million bbl and are now 2% below the five-year average. Earlier this week, analysts expected inventories to have fallen by a smaller 2 million bbl. The refining utilization rate jumped 1.1% from the previous week to 86.5% as refiners ramped up crude processing, heading into the typically busy summer driving season.

Liubov Georges can be liubov.georges@dtn.com

Liubov Georges