DTN Oil

WASHINGTON (DTN) -- Shrugging off a bullish demand forecast by the International Energy Agency, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session mostly lower after stronger-than-expected retail sales revealed more evidence of a reaccelerating U.S. economy, strengthening the case for the Federal Reserve to keep raising interest rates to fight inflation.

Retail sales in the United States jumped 3% last month -- the most in nearly two years -- underpinned by robust consumer demand despite higher interest rates and elevated inflation. Americans spent more on cars, furniture, and purchases at department stores after briefly pulling back on spending at the end of 2022.

U.S. labor market added nearly half a million new jobs at the start of the year, signaling that people who stayed on the sidelines in post-pandemic months are returning to the labor force. In reaction to the new data, Atlanta Federal Reserve's GDPNow model estimates first quarter growth higher at 2.4% from 2.2% on Feb. 8.

On the flip side, strong retail sales could bolster the Fed's efforts to rein in inflation by raising the federal funds rate, now in a 4.5% to 4.75% target range, even higher than many in the market had previously expected. Markets continued repricing the Fed's terminal rate this year after the January consumer price index report showed inflation in some components of core services proved stickier than previously thought. For context, gasoline prices rose 2.4% in January after falling in November and December, while natural gas utility prices leapt 6.7% higher in January from December -- the biggest increase since June 2022. While not entirely unexpected, these price increases will be a drag on consumers' purchasing power and are increasingly forcing some consumers to make tradeoffs in what they buy.

Lending tepid support for the oil complex is the latest demand forecast from the International Energy Agency that expects global oil consumption would grow to a record high 101.9 million barrels per day (bpd) this year, propelled almost entirely by rising fuel consumption in Asia. The figure is 200,000 bpd higher compared to the IEA forecast last month.

The Asia-Pacific region is expected to see demand growth of 1.6 million bpd, led by China, seen up 900,000 bpd from last year on resurgent air travel demand. Jet kerosene demand is now expected to increase by 1.1 million bpd to 7.2 million bpd, equating to 90% of the 2019 consumption rate.

Wednesday's inventory report from the U.S. Energy Information Administration was once again bearish, showing U.S. commercial crude oil inventories increased for an eighth consecutive week through Feb. 10, building by a massive 50.7 million barrels (bbl) since the start of the year. Last week, supplies increased by another 16.4 million bbl, lifting inventories to 8% above the five-year average at 471.4 million bbl. Analysts mostly expected inventories to have increased by a smaller 800,000 bbl in the reviewed week.

The larger-than-expected build occurred as domestic refiners reduced utilization rate by 1.4% from the previous week to 86.5% of capacity. Refiners processed 15 million bpd in the reviewed period, 383,000 bpd less than the previous week's average. Meanwhile, domestic production remained unchanged at 12.3 million bpd, the highest output rate since the coronavirus pandemic prompted a steep decline in drilling activity and production.

In the gasoline complex, commercial stockpiles built by 2.3 million bbl to 241.9 million bbl compared with expectations for a 1.5 million bbl increase. Demand for transportation fuel fell by 154,000 bpd to 8.274 million bpd last week. In contrast, distillate demand increased by 132,000 bpd to 3.894 million bpd. Domestic distillate stocks decreased by 1.3 million bbl to 119.2 million bbl.

At settlement, West Texas Intermediate futures for March delivery declined $0.47 to $78.59 bbl, and the international crude benchmark Brent contract on ICE slipped $0.20 to $85.38 bbl. NYMEX RBOB March contract added $0.0093 to $2.4978 gallon, and March ULSD futures fell $0.0957 to $2.8444 gallon.

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