DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange erased earlier losses to settle Thursday's session higher. The gains came as investors balanced concerns over a deepening economic crisis in emerging markets against better-than-expected economic data in the United States that included a solid reading on March retail sales and improved consumer sentiment.

U.S. retail sales rose for the third consecutive month in March even as consumers confronted the highest inflation in four decades and absorbed record-high gasoline prices. Retail and restaurant spending rose 0.5% last month compared with gains of 0.8% in February and 3.8% at the start of the year, according to data released Thursday morning by the Department of Commerce.

Last month's gain was mostly led by gasoline sales that increased 8.9% after Russia's invasion of Ukraine triggered higher oil and gasoline prices. Since then, consumer expectations for year-ahead gasoline prices moderated from 49.6 cents reported in March to just 0.4 cent in early April. A survey conducted by the University of Michigan showed that the shift in gasoline price expectations may be partly due to the Biden administration's announced release of strategic oil reserves and the relaxing of some seasonal regulations by the Environmental Protection Agency. However, as analysts note, more production growth is needed to offset the structural loss of Russian oil barrels on the global market.

International Energy Agency estimates Russian oil supply will fall by 1.5 million barrels per day (bpd) in April, with shut-ins projected to accelerate to around 3 million bpd from May. Russian Deputy Prime Minister Alexander Novak admitted this week that due to logistical challenges, Russian production fell between 4% and 5% in March -- the first full month of Russia's invasion of Ukraine.

Meanwhile, Americans feel more optimistic about the economy and personal finances in early April, according to a University of Michigan survey, with sentiment supported by strong jobs market and tamed expectations for year-ahead gasoline prices. Consumer sentiment index unexpectedly advanced 10.6% in early April to a three-month high 65.7 compared with analyst expectations of a 58.8 reading. Further details of the report show that nearly the entire gain was realized in the Expectations Index, which posted a monthly increase of 18%, including a leap of 29.4% in the year-ahead outlook for the economy and a 17.2% jump in personal financial expectations.

Nonetheless, the April survey offers only tentative evidence of small gains in sentiment, which is still too close to recession lows to be reassuring. There are still significant sources of economic uncertainty that could easily reverse the April gains, including the impact on the domestic economy from Putin's war, and the potential impact of new COVID variants.

Internationally, several developing countries are now facing the risk of a default on dollar-denominated debt as prices surged for essential imports of food, medicine and fuel. International Monetary Fund Managing Director Kristina Georgieva said on Thursday that the agency would reduce economic projections for both 2022 and 2023 because of war in Ukraine and subsequent trade disruptions. The downgrade will affect more than 140 countries that account for 86% of global gross domestic product. Even for economies that rely on exports of oil, gas and metals will face greater uncertainty, albeit will likely see higher growth rates.

"The fragmentation of the world economy into geopolitical blocs endangers global prosperity, necessitates hard changes, and harms poor countries," she added.

Just two days ago, Sri Lanka, one of the poorest nations in Southeast Asia, halted payments on foreign debt as a step to preserve its dwindling dollar stockpiles for food and fuel imports.

"The good news is that we see debt, we follow it, and we are already zeroing in on countries that are in need of debt restructuring," Georgieva said in an interview with Tom Keene on Bloomberg Television on Thursday. "We have to press for debt restructuring."

Oil traders closely monitor growing risks across emerging markets that will likely have a cascading effect on global fuel demand. IEA downgraded its worldwide oil demand outlook for this year by 260,000 bpd compared with last month's report, expecting demand to average 99.4 million bpd in 2022. Weaker-than-expected demand in countries outside of the Organization for Economic Cooperation and Development -- a group of mostly developing nations, coupled with stringent COVID restrictions in China added to the decline, the Paris-based agency said.

On the session, NYMEX May West Texas Intermediate advanced $2.70 to $106.95 per barrel (bbl), and the ICE June Brent contract surged $2.92 to a $111.70-per-bbl settlement. NYMEX May RBOB rallied 9.01 cents to $3.3814 per gallon, and May ULSD surged 13.64 cents to $3.8548 per gallon.

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

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