DTN Oil

WASHINGTON (DTN) -- After back-and-forth trade for most of the session Wednesday, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled modestly higher after Germany signaled its support for a measured phase-out of Russian oil imports instead of an abrupt embargo -- a move that would allow the global market to adjust to lower supplies from Russia, while nearest delivered oil products contracts rallied.

On the session, June WTI futures advanced $0.32 to settle just above $102 bbl, and June Brent gained $0.33 to $105.32 bbl, with July Brent futures narrowing a discount against the expiring contact to $0.37 bbl.

Gains by the products contracts outpaced the crude benchmarks, with NYMEX RBOB May futures rallying 11.71 cents to $3.4560 gallon ahead of expiration Friday (4/29) afternoon, with the prompt spread widening to 4.25 cents backwardation. The May ULSD contract spiked 20.64 cents to a $4.6743-gallon fresh record high settlement on the spot continuous chart ahead of Friday's expiration, ending the session near a record high intraday print of $4.7099 gallon.

A tight distillate market spurred this week's rally, with U.S. distillate stocks last measured at 107.3 million bbl, the lowest stock level since May 2008, while 21% below the five-year average.

Aside from distillates, EIA weekly inventory report was mostly bearish for the oil complex, showing a modest increase in U.S. commercial crude oil inventories accompanied with a bearish 129,000 bpd decline in gasoline demand despite what should have been a seasonal pickup in consumption.

Oil stocks rose 691,000 bbl from the previous week to 414.4 million bbl and are now about 16% below the five-year average. Analysts expected crude stockpiles to have risen 600,000 bbl. Oil stored at the Cushing tank farm in Oklahoma -- the delivery point for WTI futures -- increased 1.3 million bbl from the previous week to 27.5 million bbl. Domestic refiners decreased run rates by 0.7% from the previous week to 90.3%. Meanwhile, domestic oil production showed no signs of growth, hovering around 11.9 million bpd, unchanged from the previous week's output rate.

On the geopolitical front, German government voiced its support for a Russian oil ban, albeit as part of a phase-in approach rather than an abrupt ban on all crude shipments from Russia. Germany's proposal for a transitional period follows an abrupt cutoff of Russian gas shipments to Poland and Bulgaria, with Eastern European countries the most dependent on Russian gas. Gazprom said in a statement released this morning that it would keep those shipments turned off until the two countries agree to pay in Russia's currency the ruble.

European gas prices initially shot up 24% on the news, which European Union Commission President Ursula von der Leyen called an attempt at "blackmail." Gas flows from Russia via Ukraine are also far below levels seen earlier in April, according to analysts, with Russia still the continent's largest supplier. The decision will have little impact on Poland, which was already set to become independent of Russian gas by the end of this year. But it is a much bigger deal for Bulgaria, which gets more than 75% of its gas from Russia and has few immediate options to fully replace it.

As Russia announced natural gas deliveries to Poland and Bulgaria would be halted, the U.S. dollar index climbed to a 25-month high 102.980, while the Euro fell to its lowest level against the greenback since 2017. European gas prices soared as traders considered the possibility of other countries being hit next, raising fears of higher inflation and a severe economic slowdown.

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