DTN Oil

WASHINGTON (DTN) -- Reversing earlier losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session higher. The moves came in reaction to reports suggesting Germany -- the largest buyer of Russian oil and gas in the European Union, dropped its opposition to a proposed ban on Russian oil imports after Berlin struck a deal with Poland that would grant access to seaborne crude shipments drawn from the global market.

EU-Russia trade tensions continued to drive oil prices higher on Thursday after Germany agreed in principle to a gradual exit from Russian oil imports after months of opposition to such a move. Berlin's policy change came after it had inked a deal with Poland that will enable Germany to import oil from global exporters via the Baltic Sea port of Gdansk. German officials, however, stipulated that they need sufficient time to secure alternative supplies, meaning any embargo on Russian oil would be gradual.

The German shift increases the likelihood that EU countries will agree on a phased-in embargo on Russian oil, with a decision possible as soon as next week, according to reports.

Around half of Russia's 4.7 million barrels per day (bpd) of crude exports go to the EU. Europe gets roughly a third of its gross available energy from oil and petroleum products to satisfy demand in its transportation to chemicals production sectors.

In reaction to the reports, international crude benchmark Brent for June delivery jumped $2.27 to settle at $107.59 per barrel (bbl), with the next-month Brent contract holding a discount against the expiring contact at $0.33 per bbl. NYMEX June West Texas Intermediate futures settled the session above $105 per bbl, up $3.34 from the previous session.

Diesel and gasoline futures once again led the oil complex higher, with front-month ULSD futures up 46.11 cents to a record high, closing $5.1354 per gallon, and the May RBOB contract rallied 4.74 cents to $3.5034 per gallon.

Products received a boost on Wednesday from bullish government data showing large declines in distillate and gasoline inventories last week despite disappointing demand growth this month. Distillate inventories in the United States now stand at the lowest since May 2008 and about 21% below the five-year average, while gasoline stocks fell to about 4% below the five-year average.

In financial markets, U.S. gross domestic product for the first quarter badly missed expectations with a 1.4% decline compared with a median consensus for a 1.1% growth rate. Details of the report show there were two factors dragging on the U.S. economy during the first three months of 2022, which included an increase in COVID-19 cases related to the omicron variant that resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country. The second factor was a pullback in government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households which all decreased as provisions of several federal programs expired or tapered off. The decrease in real GDP also reflected the decrease in exports. Within exports, widespread decreases in nondurable goods were partly offset by an increase in "other" business services, mainly financial services. The decrease in federal government spending primarily reflected a decrease in defense spending on intermediate goods and services. The increase in imports was led by increases in durable goods, notably, nonfood and nonautomotive consumer goods.

In reaction to the data, U.S. dollar surged to the highest closing trade in nearly 20 years at 103.659, rallying 0.69% against a basket of foreign currencies. Gains in USD, however, failed to cap the upside for the front-month WTI contract.

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

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