DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Wednesday's session sharply higher. Futures were propelled by optimism over China's rapid reopening that has boosted near-term demand expectations, with traders shrugging off a large build in U.S. commercial crude oil supplies amid a slower-than-expected recovery in refinery runs that were disrupted late December by unseasonably cold weather.

Energy Information Administration's inventory report for the week ended Jan. 6 was overwhelmingly bearish, showing an outsized build in U.S. crude and gasoline inventories amid a sluggish rebound in refining activity and weak driving demand. Commercial oil stockpiles spiked 19 million barrels (bbl) in the reviewed week -- the biggest weekly inventory gain since February 2021 when Winter Storm Uri shuttered much of the Gulf Coast's refining capacity. Runs at domestic refiners recovered by a smaller-than-expected 4.5% last week to 84.1% of capacity, processing 14.7 million barrels per day (bpd), which is still the lowest level since late March 2021 amid the protracted recovery from Uri.

Domestic oil producers raised output for the second straight week through Jan. 6 to 12.2 million bpd. In its Short-term Energy Outlook released Tuesday, the EIA forecast U.S. oil production would once again drive output growth outside of OPEC, accounting for 40% of the gains in 2023 and 60% in 2024.

"U.S. growth is driven by increases in crude production in the lower 48 states -- mostly in the Permian region -- as well as a combination of increases to the production of hydrocarbon gas liquids and biofuels, which together account for about 40% of U.S. liquid fuels production growth in 2023 and 2024," said EIA in its monthly STEO.

Further details of EIA's weekly report showed gasoline inventories jumped 4.1 million bbl in the reviewed week to 226.8 million bbl compared with expectations for a 600,000 bbl increase. Demand for transportation fuel recovered only 44,000 bpd in the reviewed week to 7.558 million bpd after harsh winter weather kept drivers off the road in parts of the country.

Distillate demand, however, rose 1.022 million bpd to 3.821 million bpd from the lowest weekly consumption rate since April 2020 when the coronavirus pandemic shuttered large chunks of the economy. Domestic distillate stocks declined 1.1 million bbl to 117.7 million bbl.

Underlining Wednesday's higher settlements are ongoing expectations for China's rapid reopening at the start of the year to buttress demand weakness elsewhere. Globally, the focus is clearly on China that is going to be the driver of crude oil throughout the first quarter. Early signs of a travel rush for the Spring Festival that started this past weekend and lasts through mid-February indicates China's mobility recovered to near 70% to its pre-pandemic level. China's Ministry of Transport expects about 2.095 billion people will take to the road during the holiday season this year, with passenger volume by air, rail and road would be up by 99.5% from 2022 levels.

At settlement, West Texas Intermediate for February delivery rallied $2.29 to $77.41 per bbl, and Brent March futures on ICE added $2.57 to $82.67 per bbl. NYMEX RBOB February contract advanced $0.1068 to $2.4345 per gallon, and front-month ULSD futures surged to $3.2179 per gallon, up $0.0822 on the session.

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