DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied again Thursday, with West Texas Intermediate rising above $72 per barrel (bbl). The gains came amid support from upbeat U.S. inventory data showing record-high levels of fuel demand and a sharp drawdown from commercial crude-oil inventories, with gains further spurred by rising global equity markets after the Federal Reserve Open Market Committee signaled interest rate hikes to fight inflation.

The one-two punch of a bullish federal inventory report and a hawkish policy shift from the FOMC sent the oil complex into an explosive rally Wednesday and Thursday this week. Oil was initially trading lower amid concerns that the omicron variant of coronavirus would slow global oil demand this winter. The global tally for the coronavirus-borne disease climbed above 272.3 million on Tuesday, while the death toll edged above 5.33 million, according to data aggregated by Johns Hopkins University. The U.S. continues to lead the world with 50.4 million cases and more than 800,000 deaths. The International Energy Agency this week revised lower their demand forecasts by 100,000 barrels per day (bpd) for both 2021 and 2022, citing renewed quarantine measures in some of the world's largest oil-consuming economies. Further stoking concerns, the World Health Organization warned that Omicron is already spreading faster than any other variant before it.

By midweek, oil traders turned their focus to more bullish factors, including the inventory report from the Energy Information Administration and the Fed's surprisingly hawkish pivot on ultra-easy monetary policy that brought forward the timeline for the first interest rate hike since the beginning of the pandemic. Fed Chairman Jerome Powell said on Wednesday that the U.S. economy "no longer needs increasing amounts of policy support" and outlined plans to reduce the amount of bonds the central bank purchases each month, scrapping the pandemic-era program by March 2022. While not explicitly stated, the deadline moved an expected interest rate hike to early Spring next year, with fresh projections from the central bank indicating another two moves higher before the end of 2022. The Fed will be buying $60 billion of bonds each month, starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The change in policy follows data from November showing the consumer price index spiked to 6.8% over the 12-month period, a 39-year high, while wholesale prices posted the highest year-on-year gain on record at 9.6%. The Federal Reserve also noted the marked improvement in the labor market, with unemployment claims remaining near 52-year low 206,000 as of Dec. 11.

Lending further support for the complex, EIA's inventory report was surprisingly bullish, showing a sharp decline in U.S. petroleum stockpiles and stronger fuel demand. Total petroleum stockpiles declined 15.9 million bbl in the week ended Dec. 10, with 4.6 million bbl of that drop realized in crude stockpiles alone. At 428.3 million bbl, commercial crude oil inventories remain about 7% below the five-year average. Further bullish parts of the report could be found in the refined fuels complex. Gasoline stockpiles unexpectedly fell by 719,000 bbl from the previous week to 218.6 million bbl compared with analyst expectations for inventories to increase by 1.2 million bbl. Demand for motor gasoline, meanwhile, shot up by 509,000 bpd or 5.6% to 9.472 million bpd -- the highest since the week ended Oct. 29. Distillate inventories also decreased, down 2.9 million bbl to 123.8 million bbl, and are now about 9% below the five-year average, the EIA said. Distillate fuels supplied to the U.S. market spiked 1.318 million bpd or 36% from the prior week to 4.896 million bpd. That's the greatest weekly implied demand rate since late January 2003 when it was 4.926 million bpd, while total oil products supplied to U.S. market reached a record-high 23.191 million bpd last week.

At settlement, NYMEX January WTI futures advanced $1.51 to $72.38 per bbl, with ICE February Brent futures rallying to $75.02 per bbl, up $1.14 per bbl on the session. NYMEX January ULSD futures surged 4.59 cents or 1.5% to $2.2663 gallon, and the January RBOB futures contract rallied more than 5 cents to $2.1778 per gallon.

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