WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced in pre-inventory trade Wednesday after preliminary data from the American Petroleum Institute showed a surprise drop in U.S. commercial crude oil inventories during the week ended April 15, along with a larger-than-expected drawdown from distillate stocks, while an overnight retreat in the U.S. Dollar Index lent further support for the West Texas Intermediate May contract ahead of its expiration Wednesday afternoon.
The U.S. Dollar Index, which tracks the value of the greenback against a basket of foreign currencies, reversed lower from a two-year high early Wednesday. The greenback's recent gains came on the back of a solid performance by the U.S. economy compared to its global peers, with COVID shutdowns in China and disrupted trade flows in Eurozone clouding their regional outlooks in a post-pandemic recovery. The International Monetary Fund revised lower its forecast for Eurozone's growth this year to 2.2%, down 1.1% from January's forecast, citing the indirect impact of war in Ukraine.
"The main channel through which the war in Ukraine and sanctions on Russia affect the euro area economy is rising global energy prices and energy security," the IMF said in its World Economic Outlook report released Tuesday.
The war has hurt some countries like Italy and Germany more than other European nations because they had "relatively large manufacturing sectors and greater dependence on energy imports from Russia," the IMF said.
Overnight data showed industrial production in the 19-nation Eurozone bloc increased 0.7% in February, with Russia's invasion of Ukraine starting on Feb. 24. The data shows eurozone industrial output continued to grow ahead of the war, as production had stabilized at levels seen prior to the pandemic and supply chain problems were diminishing. However, the outlook for the bloc's manufacturing sector is clouded by uncertainty triggered by the conflict with clear risks to output in March and April.
On a global scale, IMF revised lower its economic outlook for growth of 3.6% in 2022 and 2023, down from 4.2% annual expansion rate projected in January.
In the United States, economic growth is seen expanding at an annualized rate of 3.7% this year, down from a 5.7% growth rate for 2021. Aggregate output for advanced economies will take longer to recover to pre-pandemic trend, said IMF, with the divergence between advanced and developing economies expected to deepen this year.
The IMF further stressed the war increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies.
"Such a tectonic shift would cause long-run efficiency losses, increase volatility and represent a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years," said IMF Tuesday.
Downbeat projections follow similar forecasts from the World Bank that cut its global economic growth outlook for this year to 3.2% from 4.1% seen at the start of 2022. The single largest factor in the reduced growth forecast was a projected contraction of 4% in Eastern Europe and Central Asia, according to World Bank President David Malpass, because of disruptions to trade and logistics brought about by the war.
For Ukraine, the World Bank estimates over half of the businesses there are closed would slash the country's gross domestic product by 45% this year. Estimates of infrastructure damage exceeding $100 billion by early March, which accounted for about two-thirds of Ukraine's GDP in 2019, are well out of date "as the war has raged on and caused further damage," said the World Bank.
Separately, API data reported late Tuesday showed commercial crude oil stocks declined a sizable 4.496 million bbl (barrels) last week compared with market expectations for a 2.2 million bbl build. Crude stocks at the Cushing tank farm in Oklahoma, the delivery point for U.S. crude benchmark contract, increased 93,000 bbl. For refined fuels, gasoline stocks, according to API, increased 2.933 million bbl against expectations for an 800,000 bbl draw. Distillate stocks were drawn down 1.652 million bbl last week per API, more than estimates for a 900,0000 bbl drawdown to have occurred.
In early trading, WTI May futures advanced $1.14 to $103.70 bbl, with the June WTI contract narrowing its discount to the expiring contract to $0.45 bbl. The June Brent contract jumped to $108.46 bbl, up $1.21 on the session. NYMEX RBOB May contract edged up 0.73 cents to $3.2547 gallon, and the front-month ULSD contract rallied 3.97 cents to $3.9016 gallon.
Liubov Georges can be reached at firstname.lastname@example.org