DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session sharply higher along with rallying equity markets amid signs that the European Union is closing in on a compromise with Hungary and Czech Republic to ban Russian oil imports at a time when global oil markets slip further into supply deficit.

Oil futures spiked more than 3% on Thursday as investors fretted over a potential EU embargo on Russian crude oil imports after Germany reportedly offered a compromise to the Hungarian government on financing projects for alternative oil supplies. Hungary is pressing for about 750 million euros to upgrade its refineries and expand a pipeline from Croatia to enable it to switch away from Russian oil. Germany's Economy Minister Robert Habeck indicated the new deal could be reached within days or look to "other instruments" to limit imports of Russian oil if no agreement is reached. Last month, EU proposed a phased-out approach to banning Russian oil imports, with several states including Hungary, Slovakia, and Czech Republic having been granted a longer period to transition away from Russian oil. Even without a formal ban, there is less Russian oil available to the market as buyers and trading houses avoid dealing with crude and fuel suppliers from the country. Russia's oil production is expected to decline to between 480 and 500 million metric tons this year from 524 million metric tons in 2021, Deputy Prime Minister Alexander Novak said, state-run news agency RIA reported on Thursday. In financial markets, U.S. equity futures rallied on Thursday, while the dollar eased against its global currency peers, as investors weighed the impact of the Federal Reserve's inflation fight. Minutes from the Federal Open Market Committee's May 3-4 policy meeting published Wednesday afternoon show a broad consensus for 50 basis point rate hikes at meetings in June and July. Participants did note the possible need for faster and deeper moves with a more "restrictive policy stance" that sustained market bets for a 75-basis point hike at some point in the tightening cycle. Minutes further showed that Fed's officials expect the U.S. economy to rebound from a first quarter contraction, as both business and household spending remained strong, and the job market remained robust.

Bureau of Economic Analysis this morning released its second estimate of first quarter U.S. gross domestic product, which contracted 1.5% on an annualized basis versus an expected 1.3% contraction.

Further supporting oil prices, a bigger-than-expected drawdown from U.S. commercial crude oil inventories in the week-ended May 20 while exports soared. U.S. refiners picked up run rates, boosting overall capacity use to the highest level since before the pandemic at 93.2%, Energy Information Administration data shows. Refinery crude inputs topped 16 million bpd at 16.269 million barrels per day (bpd) for the first time since mid-August 2021. Crude inputs increased 334,000 bpd or 2.1% during the week reviewed, with the weekly input rate the third highest over the past 12 months.

EIA also showed U.S. crude exports surged by 821,000 bpd or 23.3% last week to 4.341 million bpd, as crude oil released from the U.S. Strategic Petroleum Reserve continues to head to U.S. ports for export. EIA reported crude oil from the SPR was drawn down 6 million barrels (bbl) last week to 532 million bbl.

At settlement, July West Texas Intermediate futures rallied $3.76 to $114.09 bbl, and ICE July Brent crude advanced $3.37 to $117.40 bbl. NYMEX June RBOB rose 4.57 cents to $3.8774 gallon, while front-month ULSD rallied 10.16 cents to $3.9680 gallon.

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