Oil Futures Fade Gains Ahead of Inventory Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Retreating from intrasession highs, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session modestly higher, supported by expectations for U.S. crude oil stockpiles to have fallen for the sixth consecutive week through June 25 and gasoline demand to have jumped above pre-pandemic levels as American motorists take to the road for summer vacations.

On the session, NYMEX August West Texas Intermediate settled a tad below $73 barrel (bbl) after trading, fading from Monday's $74.45 33-month high on the spot continuous charts, and ICE August Brent crude futures inched higher for a $74.76 bbl settlement ahead of expiration Wednesday afternoon. September Brent narrowed its discount against the expiring contract to $0.48 bbl. NYMEX July RBOB futures advanced 2.24 cents to $2.2390 gallon ahead of expiration, with the August contract trading near parity. July ULSD futures notched a 0.37 cents gain to $2.1219 gallon, with the August contract holding a 26-point premium ahead of the July contract's expiration Wednesday.

Limiting the upside for the crude complex Tuesday afternoon was a strengthening U.S. dollar which gained 0.17% against the basket of foreign currencies to finish above 92 at 92.041 after the Conference Board's consumer confidence index showed Americans feel more optimistic about the economy and labor market than at any point since the beginning of the pandemic.

"Consumers' assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2. While short-term inflation expectations increased, this had little impact on consumers' confidence or purchasing intentions," said Lynn Franco, senior director of Economic Indicators at The Conference Board.

Further details of the report showed 24.5% of consumers appraised business conditions as "good," up from 19.9% in the previous month, while 54.4% of consumers said jobs are "plentiful," up from 48.9%. Only about 11% of responders said jobs ae "hard to get."

Investors are anticipating the release Friday of the U.S. jobs report for June, in which economists expect the labor market to have added 700,000 jobs during the month.

Despite upbeat sentiment, oil traders grew increasingly concerned about the rapid spread of a highly infectious Delta coronavirus variant, first detected in India at the start of 2021, which has triggered new travel restrictions across the European Union and Asia-Pacific.

Market optimism over the demand recovery following more than a year with COVID was in part tied to expectations for the return of international air travel in the second half of the year. With the rapid spread of the Delta variant, some of the bullish sentiment could come undone, as traders reassess their expectations for the summer fuel outlook.

With international travel restrictions still in place, Americans increasingly choose to travel domestically for the summer break, with the national parks system reporting demand to visit parks outstripping visitor capacity. American road tripping has undoubtedly contributed to the recent surge in gasoline demand that is reflected in DTN's proprietary Refined Fuel Demand data.

Nationwide, gasoline demand was up 0.83% and diesel demand was up 0.76% in the week ended June 25 compared to the week ended June 18. For the week ended June 25, aggregate U.S. gasoline demand was up 1.8% compared to the same week in 2019 and diesel demand was up 2.9%.

Separately, U.S. oil inventories are projected to have fallen by 3.6 million bbl in the week ended June 25, with forecasts ranging from declines of 800,000 bbl to 7.5 million bbl. Gasoline stockpiles are expected to have been drawn down 1.2 million bbl from the previous week, according to analysts, while distillates inventories are expected to have risen 400,000 bbl from the previous week. Refinery use likely rose by 0.4% to 92.6% of capacity. The American Petroleum Institute data is scheduled to be released 4:30 p.m. EDT.

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

Liubov Georges