DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session sharply higher, lifting the U.S. crude benchmark above $78 bbl as traders looked to forecasts of a high-impact winter storm with sharply lower temperatures expected later this week that is seen boosting heating demand from the Central Plains to Great Lakes and northern New England states.

Additionally, a larger-than-expected drawdown from U.S. commercial crude oil inventories reported for the week-ended Dec. 16 further boosted buying interest in the front-month West Texas Intermediate contract. WTI February futures ended the session $2.06 higher at $78.29 bbl. International crude benchmark Brent for February delivery advanced $2.21 for an $82.20 bbl settlement. NYMEX ULSD January futures rallied $0.0806 to $3.1395 gallon, and front-month RBOB futures rallied to $2.2558 gallon, up $0.033 gallon on the session.

DTN Frontier Weather forecasts a major winter storm will impact the U.S. later this week, with damaging gusts and snow possible from parts of the Great Lakes into northern New England.

"The cold air is going to slam in fast across the East, producing flash freeze potential, which could be a significant travel impact," said DTN meteorologists. "Intense arctic air will plow through the Plains and pour into the East behind this system" into the weekend.

The storm could have a double-edged impact on fuel demand this holiday weekend. On one hand, storm-like conditions could disrupt traveling that should pick up on Friday (12/23), with the American Automobile Association estimating nearly 102 million people will be on the highway during the holiday travel season. AAA also sees a sharp increase in air travel, projecting a 14% increase from a year ago, with 7.2 million people in the United States seen flying to their destination, just shy of 2019's 7.3 million people.

On the other hand, the arctic blast will boost heating demand across the country's coldest regions. About 83% of space heating demand satisfied with heating oil is located in New England states, with the Energy Information Administration reporting the region's distillate fuel stocks at 4.277 million bbl on Dec. 16, 2.6 million bbl or 37.5% below the comparable year-ago period.

EIA also reported this morning that demand for middle distillates, including heating oil, recovered to above 4 million bpd last week, some 5% higher against last year's weekly demand rate. Distillate fuel inventories nationally dipped by 242,000 bbl to 119.9 million bbl and are now 7% below the five-year average.

In the gasoline complex, consumption also rebounded from a five-month low 8.255 million bpd last week, indicating stronger driving demand ahead of the holiday travel season. In the reviewed week, gasoline supplied to the U.S. market, a measure of demand, grew 459,000 bpd to 8.714 million bpd. Gasoline stockpiles still built by 2.5 million bbl to 226.1 million bpd compared with expectations for inventory to have increased by 1.3 million bbl.

Meanwhile, commercial crude oil inventories fell 5.9 million bbl to 418.2 million bbl compared with analyst expectations for crude stockpiles to have fallen by just 300,000 bbl in the reviewed week. The supersized draw was realized despite another relatively large 3.6 million bbl transfer of crude oil last week from the Strategic Petroleum Reserve to the commercial side, extending a yearlong effort by the U.S. government to stabilize oil markets. Oil stored at Cushing, Oklahoma hub, the delivery point for NYMEX WTI futures, increased 853,000 bbl from the previous week to 25.2 million bbl, the EIA said in its weekly report.

The refining utilization rate, meanwhile, dropped 1.3% from the previous week to 90.9% of capacity in contrast to expectations with a 0.2% increase. That follows a decline in refinery run rates for each week so far this month. Refiners processed 16 million bpd of crude during the week-ended Dec. 16, 150,000 bpd less than the previous week's average.

Brian L. Milne can be reached at brian.milne@dtn.com