DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced for a third consecutive session early Thursday after the European Union signaled compromise with Hungary over an agreement to ban Russian oil imports in a move that could further tighten global oil markets ahead of the start of the summer driving season in the United States and European Union.

European Council President Charles Michel on Wednesday said he is confident EU can still strike a deal for a Russian oil embargo before the council's next meeting on May 30. The 27-nation economic bloc banned imports of Russian coal last month, but imposing restrictions on oil has proven a much more complicated task due to high dependency of some member states. Hungary remains a stumbling block to the unanimous support needed for EU sanctions. 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.

Last month, the 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. German 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.

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 million metric tons (mmt) and 500 mmt this year from 524 mmt in 2021, Deputy Prime Minister Alexander Novak said, state-run news agency RIA reported Thursday.

In financial markets, U.S. equity futures moved higher early 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 will release its second estimate of first quarter U.S. gross domestic product which is expected to show a 1.3% contraction on an annualized basis that would be slightly better than an advanced estimate showing the U.S. economy shrunk at a 1.4% annualized rate. The Atlanta Fed GDPNow model calls for second quarter GDP growth of 1.8%.

Further supporting oil prices, a bigger-than-expected drawdown from U.S. commercial crude oil inventories in the week to May 20 while exports soar buoyed the market on Wednesday. U.S. refiners picked up run rates, boosting overall capacity use to the highest level since before the pandemic at 93.2% of capacity, Energy Information Administration data shows. Refinery crude inputs topped 16 million barrels per day (bpd) at 16.269 million 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.

Near 7:30 a.m. EDT, July West Texas Intermediate futures gained $0.93 to $111.25 bbl, and ICE July Brent crude advanced $0.82 to $114.85 bbl. NYMEX June RBOB gained 2.2 ents to $3.8537 gallon, while front-month ULSD moved 1.35 cents higher to $3.8799 gallon.

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