DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange swung between gains and losses on Thursday as investors parsed through a mixed bag of macroeconomic data in the United States showing a surprise drop in weekly jobless claims amid sharp deterioration in key sectors of the economy, while an outsized build in domestic crude and gasoline inventories coupled with improving fuel demand at the start of the year further added to an uncertain outlook.

After a day of choppy trading, crude and products futures managed to finish the session in the green possibly helped by a surprise improvement in U.S. unemployment claims that fell last week to the lowest level since September 2022 at 190,000, suggesting the labor market remains extremely tight despite higher interest rates. High-frequency unemployment claims remained consistent with a tight labor market for months even as layoffs have accelerated in the technology industry and interest rate-sensitive sectors.

Outside those sectors, analysts say businesses are generally reluctant to let go of workers after difficulties finding labor during the pandemic. Indeed, the Federal Reserve's Beige Book released on Wednesday reported "many firms hesitated to lay off employees even as demand for their goods and services slowed and planned to reduce headcount through attrition if needed."

Aside from the labor market, the economy is flashing familiar signs of a recession.

This week's macroeconomic data showed a deterioration in U.S. manufacturing output as well as retail sales at the height of the holiday shopping season. Factory output in December declined 1.3% compared with expectations for a 0.2% dip, indicating manufacturing activity has lost momentum as inflation pressure and higher interest rates cut demand for goods. Data for November was also revised lower to show production at factories decreased 1.1% instead of the previously reported 0.6%.

Separate figures released Wednesday showed a 1.1% decline in retail sales for December -- typically the busiest time for holiday shopping. Sales at department stores surprisingly dropped by 6.6% month-on-month. Sales were also revised lower in November and have now fallen in three of the past four months. The decline in retail sales clearly shows the U.S. economy slowed late last year as American consumers pulled back on spending.

Also on Thursday, traders parsed through the weekly inventory report from the U.S. Energy Information Administration showing yet another outsized build occurred in domestic crude oil stockpiles along with a slow recovery in refinery utilization.

U.S. refiners again increased run rates by a smaller-than-expected 1.2% last week to 85.3% of capacity after runs fell to the lowest weekly rate since Winter Storm Uri in February 2021 shuttered much of the refining capacity in the Gulf Coast. Analysts mostly expected run rates to recover by 3% from the previous week. For the week, refiners processed 202,000 bpd more crude averaging 14.853 million bpd, which is still near the lowest processing rate since late March 2021. Slow recovery in refinery run rates indicates some refineries might have gone into early maintenance, with the turnaround season heaviest in February and March.

Slow recovery in refinery runs led to a massive 8.4 million bbl build in commercial crude stockpiles compared with expectations for a 1.1 million bbl decline. At 448 million bbl commercial crude stockpiles stand about 3% above the five-year average. In the gasoline complex, commercial stockpiles jumped 3.5 million bbl in the reviewed week to 230.3 million bbl compared with expectations for a 1.7 million bbl increase. Demand for gasoline recovered 496,000 bpd in the reviewed week to 8.054 million bpd.

At settlement, West Texas Intermediate for February delivery advanced $0.85 to $80.33 bbl, with the March contract narrowing its premium against the expiring contract to $0.28. Brent March futures on ICE rallied $1.18 to $86.16 bbl. NYMEX RBOB February contract gained to $2.5968 gallon, up 7.33cts on the session, and front-month ULSD futures jumped $0.1129 to settle at $3.3759 gallon.

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