DTN Oil

WASHINGTON (DTN) -- As the U.S. dollar erodes against a basket of foreign currencies to its lowest trade since March 17, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in pre-inventory trade Wednesday after preliminary industry data from the American Petroleum Institute showed nationwide petroleum stockpiles decreased by a larger-than-expected margin during the week-ended March 25, while mixed signals from the Russian military on the ground in Ukraine fueled uncertainty over the next stage in the ongoing conflict.

API late Tuesday reported U.S. commercial crude oil stocks plummeted 3 million bbl last week, three times calls for a 1 million bbl drop. Inventories at the NYMEX delivery point for West Texas Intermediate in Cushing, Oklahoma, experienced a 1.061 million bbl decline. Cushing stockpiles currently stand at 25.2 million bbl, down from 37.3 million bbl since the end of 2021.

Gasoline stockpiles dropped 1.357 million bbl last week versus an expected 1.3 million bbl draw, while distillate supplies decreased 215,000 bbl, falling short of calls for a 1.2 million bbl draw.

DTN Refined Fuels Demand data showed distillate demand in the United States declined for the second consecutive week, falling 5.3% during the week-ended March 25th after eroding 4.5% in the prior week. Total U.S. diesel demand was down 1% year-on-year for the week and 1.1% lower from the same week in 2019. The data could be an early sign of developing weakness in U.S. diesel demand that closely correlates with economic activity, consumer purchases and international trade. It is also possible that supply chain issues related to Russia's invasion of Ukraine and COVID-related lockdowns in China could already be impacting domestic freight activity and concomitantly diesel demand.

Gasoline demand, meanwhile, increased by 0.8% in the reviewed week, according to DTN Refined Fuels Demand data, and now stands roughly in line with consumption levels from the same week in 2019. With most U.S. states having rapidly exited pandemic restrictions and traffic volumes seasonally stronger heading into the summer driving season, U.S. gasoline demand is likely to remain near or above pre-pandemic levels over the next few months.

Markets now await the release of the U.S. Energy Information Administration inventory report on tap for 10:30 AM ET.

Wednesday's move higher is also underpinned by a rapidly declining U.S. dollar that slumped 0.4% in index trading to trade at a 97.855 two-week low. Greenback's weakness comes ahead of the release of March employment report from the Automatic Data Processing system that is expected to show U.S. businesses added 438,000 new jobs from February to March after a 475,000 gain the previous month. U.S. unemployment claims have been steadily declining in recent weeks to hit the lowest level since 1969 on March 18.

Last month, U.S. economy added 678,000 new jobs, far ahead of expectations for a 400,000 gain, as economic activity continued to rebound. Unemployment rate dipped to 3.8%, supported by widespread job growth, and led by gains in leisure and hospitality, professional and business services, health care, and construction. Economists anticipate employment growth to slow to 155,000 in March.

On the geopolitical front, skepticism grew over claims from senior Russian officials that Moscow is ready to deescalate the situation in Ukraine by "drastically" reducing activity around key cities in central Ukraine, including the capital Kyiv.

Any comments from Russian officials should be met with a healthy dose of skepticism these days, warned U.S. Secretary of State Antony Blinken, referring to remarks from a senior Russian official who suggested that Moscow is now ready to deescalate the conflict in Ukraine. Wire services in Russia quoted Defense Minister Sergei Shoigu saying the first phase of Russia's military operations have been completed and Russian troops would now focus solely on "liberating" separatist republics of Donbass and Lugansk.

Traders quickly judged de-escalation in central Ukraine around Kyiv and Chernihiv would not automatically mean the end to the conflict that has rattled commodity markets in recent weeks. Russian President Vladimir Putin is reportedly changing strategy after failing to oust Ukrainian President Volodymyr Zelensky, and instead of taking full control of the country is now seeking to divide the sovereign nation into two parts -- an unacceptable condition for Ukraine. Still, hope of de-escalation sent oil prices lower on Tuesday, with the U.S. crude benchmark briefly retreating below $100 bbl.

Near 7:45 AM ET, NYMEX May West Texas Intermediate futures jumped $2.59 to $106.85 bbl, and ICE May Brent futures advanced $2.53 to $112.76 bbl. Next-month June Brent futures narrowed its discount to the May contract $2.53 bbl ahead of Thursday's expiration. NYMEX April ULSD futures gained 10.39 cents to $3.8200 gallon, widening the prompt spread to 34.75 cents gallon. April RBOB futures strengthened to $3.2729 gallon, up 6.96 cents from the prior session, and the May contract widened its discount to April delivery to 3 cents gallon. The April RBOB and ULSD futures contracts expire alongside May Brent Thursday afternoon.

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