DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session with gains between 2.5% and 3%, supported by a larger-than-expected drop in U.S. commercial crude oil inventories and a rapidly declining dollar index as investors positioned ahead of a key employment data release in the U.S., while uncertain progress in ceasefire talks between Russia and Ukraine continued to weigh on market sentiment.

The U.S. Energy Information Administration inventory report was mixed to bearish for the oil complex, showing a 3.4 million barrel (bbl) drop in commercial crude oil supplies accompanied by unexpected 2.15 million bbl increase in refined fuel inventories amid counter-seasonal weakness in demand for both gasoline and middle distillates. U.S. gasoline consumption eroded for the third straight week through March 25 at a time when it normally rises into summer driving season. Even as most U.S. states left pandemic restrictions in the rear view, gasoline consumption dropped to the lowest weekly rate since mid-January at 8.499 million barrels per day (bpd), bringing the four-week average some 5% below the comparable four-week average in 2019. The data might reveal early signs of demand destruction as high pump prices appear to be deterring U.S. drivers. AAA reported the national average for a gallon of gas on Tuesday was $4.24, which is 63 cents more than a month ago and $1.38 more than a year ago. The same trend could be found in U.S. diesel demand that declined for the second consecutive week through March 25, falling 712,000 bpd from the previous week to 3.804 million bpd. It's worth noting that diesel demand closely correlates with economic activity in the U.S., 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.

Traders will keep a close eye on demand fundamentals in the U.S. as prices for crude oil, a key component of inflation, will likely remain elevated for the next several months.

Wednesday's higher settlements are also underpinned by a rapidly declining U.S. dollar that extended losses to 97.875 on Wednesday, down 0.50% against the basket of foreign currencies. The greenback's weakness follows the release of March employment report from the Automatic Data Processing system, showing private payrolls grew by 455,000, slightly more than expected, indicating that hiring is strong despite signs of a tightening labor market. ADP's report showed that hiring was spread evenly around sectors, with leisure and hospitality adding 161,000 to lead the way. Education and health services contributed 72,000 while professional and business services was next with 61,000 new jobs. On the goods-producing side, manufacturing led with 54,000 while construction added 15,000. The report comes two days before the more closely watched nonfarm payrolls report, with the Bureau of Labor Statistics expected to show jobs growth of 155,000 for the month.

On a session, NYMEX May West Texas Intermediate futures jumped $3.58 to $107.82 bbl, and ICE May Brent futures advanced $3.22 to $113.45 bbl. Next-month June Brent futures narrowed its discount to the May contract $2.01 bbl ahead of Thursday's expiration. NYMEX April ULSD futures gained 9.24 cents to $3.8085 gallon, widening the prompt spread to 35.15 cents gallon. April RBOB futures strengthened to $3.3250 gallon, up 12.17 cents from the prior session, and the May contract widened its discount to April delivery to 3.86 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