DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session higher, propelled by another round of U.S. economic data showing the broader economy is still underpinned by solid growth momentum despite some pockets of weakness, raising hopes for a so-called "soft-landing" -- a scenario where inflation is easing without a recession.

Thursday's round of macroeconomic data in the United States showed more evidence that the economy could still avoid recession, which would be supportive for the short-term demand outlook. For starters, the U.S. economy closed out 2022 in solid shape even as gross domestic product slowed to 2.9% in the final three months of the year, according to data released this morning by the Bureau of Economic Analysis. Economists mostly expected a softer reading of 2.6%. Further details of the report revealed the increase in real GDP was broad-based, driven by gains in private inventory investment, consumer spending, and federal and local government spending.

Personal income increased $311 billion in the fourth quarter compared with an increase of $283.1 billion in the three months ending in September 2022. The gain primarily reflected increases in compensation led by private wages and salaries, government social benefits, and personal interest income. That could be supportive of consumer discretionary spending this year should the national unemployment rate remain near historically low levels.

In the labor market, weekly unemployment claims dropped again last week, suggesting demand for labor is still plentiful even as some large employers announce job cuts.

Initial jobless claims, a proxy for layoffs, fell 6,000 to 186,000 last week, with several large states, including California, Texas, New York, and Michigan, reporting large declines in jobless claims. There were 10.5 million job openings in November, down from the peak of 11.9 million in March, but far exceeding the number of unemployed Americans seeking work, a mismatch that continues to fuel competition for workers.

"We're making more jobs than we have new entrants or re-entrants coming in willing to take them," Federal Reserve Bank of San Francisco President Mary Daly said in an interview earlier this month. "So we're still out of balance, but it is slowing."

Despite some encouraging macroeconomic data, demand for refined fuels that is closely tied to industrial activity and consumer spending remains weak, according to data from the U.S. Energy Information Administration. Distillate fuel oil supplied to the U.S. market -- a proxy for demand -- fell below 4 million bpd last week, some 678,000 bpd or 14% below last year's consumption rate. Middle distillate demand closely correlates with economic activity, with the middle of the barrel mostly consumed in industrial and commercial sectors, including construction, trucking, farming and for heating.

Manufacturing conditions in the U.S. deteriorated significantly at the start of the year, hit by rising interest rates and a lack of consumer demand. For instance, New York manufacturing activity fell this month to the lowest level since May 2020 when the economy was shut down by the COVID lockdown. On the national level, new orders across the private sector declined for the fourth successive month in January. Inflation, interest rates and customer hesitancy continued to be reported as driving the downturn.

Gasoline demand didn't fare much better at the start of the year, with the four-week average consumption through Jan. 20 falling to 7.8 million bpd, down 4.7% from the same period last year. A combination of weak fuel demand along with a slow recovery in refinery run rates pushed U.S. crude oil inventories to the highest level since June 2021. At 448.5 million bbl nationwide, crude oil stockpiles now stand 3% above the five-year average.

At settlement, West Texas Intermediate futures for March delivery advanced to $81.01 bbl, up $0.86 on the session, and Brent March futures on ICE rallied $1.35 bbl to $87.47 bbl. NYMEX RBOB February contract advanced to $2.6121 gallon, and front-month ULSD futures gained $0.0352 to $3.3965 gallon.

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