Oil Gains on Demand Optimism Ahead of US Inflation Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved higher in early trade Thursday, lifting U.S. crude benchmark above $90 per barrel (bbl) after the Organization of the Petroleum Exporting Countries forecasted global oil demand would return to pre-pandemic levels this year, driven by continued improvement in global mobility trends, manufacturing activity and consumption for petrochemical feedstock.

Worldwide oil consumption is expected to average 100.8 million barrels per day (bpd) in 2022, growing at an annual rate of 4.2 million bpd, according to the OPEC's Monthly Oil Market Report released this morning. Demand growth in developing countries is seen growing 2.3 million bpd this year, surpassing the pre-pandemic level of 2019 by around 2 million bpd.

China, India, and Other Asia are the main drivers behind the gains in developing countries, making up more than two-thirds of the projected growth volume. In China, the ongoing return of mobility is seen boosting gasoline demand, which is projected to grow by around 200,000 bpd year-on-year, with diesel and jet fuel consumption adding support.

The demand forecast for countries that are part of the Organization for Economic Cooperation and Development is for growth of 1.8 million bpd, although not yet reaching pre-pandemic levels in absolute volumes. In the OECD, optimism arises from economic growth with the supportive effects of fiscal and monetary policies expected to more than offset the negative effects from Omicron on oil demand. Industrial activities are also anticipated to accelerate, boosting diesel demand. Meanwhile, mobility has recovered substantially with domestic, regional and international flights already showings signs of recovery.

On the supply side, OPEC maintained its projections for non-OPEC production growth at 3 million bpd, averaging 66.6 million bpd in 2022. The main drivers of liquids supply growth are expected to be the United States and Russia, followed by Brazil, Canada, Kazakhstan, Norway and Guyana.

Further supporting the oil complex, the U.S. Energy Information Administration said on Wednesday domestic crude oil inventories declined to the lowest level since October 2018 at 410.4 million bbl, some 10% below the five-year average. Total U.S. crude and oil products stocks fell by 8.1 million bbl to 1.171 billion bbl -- the lowest inventory level since mid-2014.

The weekly figures on U.S. stocks follow estimates for the OECD inventories to have dropped to the lowest level since mid-2014 last month, according to EIA's Short-term Energy Outlook released Tuesday. OECD stockpiles are unlikely to return to five-year average levels until roughly mid-2023, leaving the market vulnerable to supply disruptions and domestic and geopolitical tensions.

Wednesday's inventory report was also supportive for the gasoline complex, showing domestic inventories unexpectedly fell by 1.6 million bbl to 248.4 million bbl compared with analyst expectations for inventories to have increased by 1.4 million bbl last week. Demand for motor gasoline shot up 900,000 bpd to 9.126 million bbl -- the highest implied demand rate since the week of Dec. 24.

In outside markets, U.S. dollar index reversed higher against a basket of global currencies to trade near 95.535, while also weighing on front-month West Texas Intermediate. Dollar strength comes ahead of the release of U.S. consumer price index for January scheduled for 8:30 a.m. ET. Economists expect CPI to have gained 0.5% last month, bringing the annualized inflation rate to 7.3% -- the fastest increase in consumer prices since at least 1981.

Near 7:45 a.m. ET, March WTI futures gained $0.69 to $90.37 bbl, and Brent crude for April delivery climbed above $92 bbl, adding $0.58 so far on the session. NYMEX March RBOB futures moved 2.10 cents higher to $2.6745 gallon, and the front-month ULSD contract gained 0.57 cents to $2.8396 gallon.

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

Liubov Georges