WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange posted mixed results in afternoon trade Tuesday. The U.S. crude benchmark backed off intrasession highs under pressure from building crude oil inventories domestically and a resurgence of buying interest in the U.S. dollar after a stronger-than-expected October retail sales and industrial production figures showed the economy is on solid footing despite concerns over inflation.
The greenback extended its optimism witnessed at the beginning of the week, advancing 0.5% against a basket of foreign currencies after the U.S. Census Bureau reported retail sales increased for the third consecutive month in October. Spending rose sharply last month, up 1.7% from September's 0.8% gain, signaling households continue to tap into savings even with the fastest rise in inflation in decades. The fresh data might also suggest Americans simply started their holiday shopping earlier than usual, trying to avoid delivery delays and empty shelves, with supply disruptions everywhere. The elevated spending level suggests solid holiday sales this season, lifting economic growth. J.P. Morgan said Tuesday it was upgrading its growth expectations, raising its forecast for fourth-quarter U.S. gross domestic product to 5% from 4%.
Interestingly, the consumer sentiment index published by University of Michigan showed Americans feel more pessimistic about the economy than at any point in the past decade -- a somewhat incompatible trend with higher spending.
"One-in-four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact. Nominal income gains were widely reported but when asked about inflation-adjusted gains, half of all families anticipated reduced real incomes next year," said Surveys of Consumers Chief Economist Richard Curtin.
Meanwhile, industrial production rebounded 1.6% last month after a 1.3% plunge in September, the Federal Reserve reported Tuesday. The gain was double what had been expected. The September weakness reflected severe shortages of semiconductor chips that contributed to a fall in auto production and the lingering impacts of Hurricane Ida. Industrial output in October was also helped by an 11% jump in production of motor vehicles and parts, after two months of declines caused by severe supply chain shortages of the semiconductors needed as component parts.
Also, on Tuesday, oil traders positioned ahead of weekly inventory data from the American Petroleum Institute due out at 4:30 p.m. EST, followed by the official report from the Energy Information Administration Wednesday morning. U.S. commercial crude oil inventories likely increased by 500,000 barrel (bbl) for the week ended Nov. 12, with estimates ranging from a decrease of 3.5 million bbl to an increase of 2.7 million bbl.
Gasoline stockpiles are expected to have declined by 600,000 bbl from the previous week, while distillate stocks expected to show a draw of 1.3 million bbl from the previous week. Refinery use likely increased by 0.7% from the previous week to 87.4% of capacity.
DTN Refined Fuels Demand data found domestic gasoline demand decreased 0.2% in the reviewed week, with total consumption weakening 1.9% compared to the same week in 2019. Diesel demand, meanwhile, increased 0.2% while remaining 4.5% above pre-COVID levels. If diesel demand follows its normal pre-COVID seasonality, demand should currently be peaking for the year. Likewise, gasoline demand typically trends lower in the fourth quarter before a final surge amid the Christmas holiday.
Separately, the International Energy Agency projected Tuesday morning worldwide oil consumption would rise by 5.5 million barrels per day (bpd) this year -- unchanged from the previous month's forecast, despite concerns over expected demand weakness stemming from COVID-19 flare-ups across Europe. In 2022, the Paris-based agency estimates demand growth of 3.4 million bpd.
This week, a number of European countries resorted to targeted lockdowns in their attempt to slow the spread of the virus ahead of the winter months. Netherlands, Austria, and Russia have announced "stay-at-home" orders for the unvaccinated and limited hours of operations for contact sensitive businesses.
On the session, NYMEX West Texas Intermediate futures for December delivery slipped $0.12 to $80.76 bbl and the Brent contract for January added $0.38 for a $82.43 bbl settlement. NYMEX RBOB December futures rallied 2.09 cents to $2.3497 gallon and front-month NYMEX ULSD futures advanced 3.28 cents or 1.3% to $2.4309 gallon.
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