Oil Softens After Mixed Inventory Report, Stronger USD

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After sideways trading for most of the session, crude and refined products futures on the New York Mercantile Exchange and Brent futures traded on the Intercontinental Exchange settled mixed Thursday as market participants assessed a mostly bearish inventory report from the U.S. Energy Information Administration (EIA), showing commercial crude stockpiles unexpectedly increased during the third week of January and gasoline supplies rose well above market expectations amid vapid fuel demand.

A 514,000 barrel (bbl) build in commercial oil inventories occurred during the week ended Jan. 14 after refiners pulled back on crude throughputs, down 120,000 barrels per day (bpd) from the previous week. This marked the first build in commercial oil inventories in nearly two months, while gasoline demand softened amid the resurgent pandemic and some pullback in consumer mobility. COVID-19 hospitalizations are averaging 156,505 each day in the United States, up 54% from two weeks ago and the most since the start of the pandemic.

Thursday's EIA data suggests, however, gasoline demand in the United States began a tepid recovery last week as omicron infections retreated in a number of northeastern states. COVID-19 cases appear to have peaked in New York City, Cleveland, Chicago and Washington, D.C., according to John Hopkins University tracker. U.S. gasoline demand recovered 318,000 bpd or 4% from an 11-month, 7.906 million bpd reported in the previous week. Although up on the week, demand for gasoline is still down compared to the fourth quarter 2021.

Gasoline stocks increased for the third consecutive week through Jan. 14, building by more than 24 million bbl since the start of the year to 246.6 million bbl, narrowing an undersupplied market disposition to 2% below the five-year average.

Distillate supplies fell 1.4 million bbl to 128 million bbl last week, and are now about 16% below the five-year average, the EIA said. Demand for distillate fuel surged 807,000 bpd during the reviewed week 4.556 million bpd.

EIA data was directionally in line with DTN Refined Fuels Demand data that found U.S. gasoline demand up 7.8% year-on-year for the week profiled but down 2.9% from the same week in 2020. Total U.S. diesel demand was up 5.6% year-on-year for the week and up 6% from the same week in 2020.

In outside markets, U.S. equities rebounded from a two-day selloff on Thursday despite a higher-than-expected print on U.S. jobless claims last week that offers additional evidence of omicron-led disruption to the labor market. First-time applications for unemployment benefits surged to a three-month high 286,000 last week, up 55,000 from the previous week's revised levels. Jobless claims have now increased a third consecutive week after falling to the lowest level in decades. Claims had reached a 52-year low of 188,000 in December, as many employers attempted to keep their existing workforces in the face of widespread labor shortages.

Further pressuring the oil complex on Thursday is a rebounding U.S. Dollar Index that gained 0.18% against a basket of foreign currencies to settle at 95.725.

West Texas Intermediate February contract expired near a seven-year high $86.90 bbl, little changed on the session, with March futures settling at $85.55 bbl. International crude benchmark Brent for March delivery finished slightly lower at $88.38 bbl, with losses accelerating post-settlement. NYMEX February RBOB futures gained 0.52 cents to settle at $2.4622 gallon, and the front-month ULSD contract fell 2.05 cents to $2.6718 gallon.

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

Liubov Georges