Oil Futures Retreat as Druzhba Flows Resume, Stronger USD

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange continued lower in early trading Thursday amid a stronger U.S. dollar, lifted by hawkish remarks from several Federal Reserve officials this week, and reports suggesting oil flow through a key pipeline bringing Russian oil to Eastern Europe resumed after a brief power cut.

Oil prices were drifting lower early in the session after Hungary's oil and gas company MOL confirmed that oil flows through the Druzhba pipeline resumed at full capacity. Druzhba pipeline supplies Russian oil to several countries in Eastern and Central Europe, including refineries in landlocked Hungary, Slovakia, and the Czech Republic. On Tuesday, Ukraine notified European partners that it had suspended oil pumping via Druzhba pipeline in direction of Hungary due to an unidentified technical reason.

"The reason for the suspension of supplies has not yet been officially confirmed by the Ukrainian side," said Slovakia's Transpetrol in a statement, adding that it is still gathering information before it can reveal details.

Oil futures briefly spiked Tuesday amid a perceived risk of a supply disruption that coincided with a large explosion in eastern Poland near the Ukrainian border that raised widespread alarm among members of the North Atlantic Treaty Organization of a possible expansion of the war in Ukraine. However, Wednesday morning Polish President Andrzej Duda said there was no evidence suggesting the missile that hit a Polish border town with Ukraine was an intentional attack by Russia. The missile was likely an old Soviet Union rocket deployed by Ukrainian anti-air defense said the Polish president. This week, Russia launched numerous missiles at Ukrainian cities in one of the largest barrages of missile attacks since the Feb. 24 invasion of Ukraine.

In financial markets, the U.S. Dollar Index regained ground against a basket of foreign currencies to trade near 106.800 as investors digest recent comments from Fed officials that point to more rate hikes in coming months. Federal Reserve Governor Christopher Waller said on Wednesday that in his view central bank's policy is barely restrictive, adding that "we have a long way to go in terms of raising interest rates."

Waller further stated it was too soon to conclude that inflation had peaked or that the central bank would be able to end its rate increases early next year. He pointed to the summer months last year when inflation pressures appeared to be easing but later reaccelerated.

Inflation in October moderated to 0.4% from 0.6% seen over the previous month, which has brought an annualized increase in consumer prices to 7.7%.

On economic data front, U.S. retail sales surprised in October with a 1.3% gain after an unchanged reading in September, according to data from Commerce Department. Americans spent more on everyday items such as gasoline and food, but they also shelled out more on discretionary spending such as cars, furniture, and restaurant meals. Some economists suggest the jump in October retail sales could be a sign of an early holiday shopping season.

Later Thursday morning, the U.S. Department of Labor will release its latest assessment of weekly unemployment claims with markets expecting the number of people seeking first-time jobless benefits remained steady near 225,000 during the week ended Nov. 12.

In early trading, NYMEX December West Texas Intermediate futures dropped more than $1.80 to trade near $83.70 barrel (bbl), and January Brent futures on ICE declined $1.55 to $90.10 bbl. December RBOB futures on NYMEX fell $0.0460 to $2.4620 gallon, with December ULSD futures $0.0690 lower at $3.5446 gallon.

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

Liubov Georges