DTN Oil

WASHINGTON (DTN) -- While the ULSD contract softened Thursday, oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the session with sharp gains, buoyed by a surprise drawdown in U.S. gasoline stockpiles and rebounding demand for the transportation fuel that offset another weekly build in commercial crude oil inventories.

Further supporting the oil complex, stocks on Wall Street are on the verge of snapping the longest losing streak of the year, trading higher late afternoon after weekly unemployment claims filings were fewer than expected at 192,000 during the week ended Feb. 18. Jobless claims have remained below 200,000 for six consecutive weeks, signaling the labor market is holding onto its post-pandemic gains despite signs of slowdown in some sectors of the economy.

Minutes from the Federal Open Market Committee's Feb. 1 meeting revealed central bank officials are concerned that the tight labor market could trigger a reacceleration of inflation later this year.

"Several participants advocated raising interest rates by 50 basis points" due to a "high level of uncertainty about the economy, labor market and the inflation," according to the minutes.

At least two Fed officials publicly voiced their support for a larger rate increase at the Fed's last meeting in February that concluded with a 25-basis point hike in the federal funds rate.

Late afternoon, Dow Jones Industrials were up more than 100 points, the S&P 500 advanced 0.5%, and the technology-heavy Nasdaq Composite rose 0.7%.

NYMEX April West Texas Intermediate futures advanced $1.44 to $75.39 per barrel (bbl), with the international crude benchmark Brent contract rallying $1.61 to a $82.21-per-bbl settlement. NYMEX RBOB March added $0.0419 to $2.3795 a gallon, and nearby-month NYMEX ULSD futures softened $0.0067 to $2.7081 gallon.

Thursday's inventory report from the U.S. Energy Information Administration was once again bearish with some supportive elements for the gasoline complex, with gasoline stocks unexpectedly drawn down 1.9 million bbl to 240.1 million bbl. Gasoline demand rebounded 636,000 barrels per day (bpd) to the highest level since the holiday week ended Dec. 22 at 8.91 million bpd.

Greater gasoline demand offset the ninth consecutive weekly build in commercial crude oil inventories through Feb. 17, building by 7.6 million bbl last week to 479 million bbl, about 9% above the five-year average. The larger-than-expected build occurred as domestic refiners again reduced run rates, down 0.6% last week to 85.9% utilization.

Also bearish was an unexpected 2.7 million bbl build in distillate stocks to 121.9 million bbl last week, with inventory now about 12% below the five-year average from 15% during the previous week.

The unexpected build in middle distillate stocks offered further evidence of a demand slowdown in the goods-producing sector of the economy that slid into recession almost eight months ago and remained in contraction at the start of the year. The U.S. Purchasing Managers Index for early February showed the U.S. manufacturing sector is now in its steepest downturn since 2009 (if pandemic lockdown months are excluded).

Oil traders expect the Federal Reserve will raise interest rates further into restrictive territory this year to slow down inflation in the services sector while sending the manufacturing sector further into recession, dampening demand for middle distillates.

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