DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange settled Tuesday's session mixed, with West Texas Intermediate lent tepid support from a weaker U.S. dollar. Meanwhile, the gasoline and ULSD contracts came under pressure from concerns over demand amid higher interest rates.

Big banks this week, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, reported blowout profits for the first quarter amid rising interest rates and a flight to safety following the collapse of Silicon Valley Bank in March but warned that consumers were falling behind on credit card payments. Bank executives noted consumers remain healthy overall but do expect delinquencies to increase in the coming months amid high interest rates.

Higher borrowing costs could eat into consumers discretionary spending, with retail sales in the United States falling 1% in March, according to the U.S. Census Bureau last week. Historically, less discretionary spending has translated into reduced driving demand, with gasoline demand accounting for nearly 44% of U.S. oil product consumption so far in 2023.

Gasoline supplied to the U.S. market is running slightly above the year-ago pace cumulatively in 2023, with four-week average demand through April 7 a sharp 475,000 barrels per day (bpd) or 5.5% more than the comparable four weeks in 2022 at 9.084 million bpd, according to the Energy Information Administration.

Distillate demand has been under pressure in 2023 amid weak manufacturing activity, and a slowdown in home construction, with diesel fuel closely correlated with industrial and commercial activity. High interest rates are a burden for these industries. EIA shows distillate demand improved in the most recent four-week period at 3.922 million bpd, 59,000 bpd or 1.5% above the comparable four weeks in 2022, although cumulatively this year, distillate supplied to the U.S. market is 373,000 bpd or 8.9% below year ago at 3.83 million bpd.

The U.S. dollar index weakened 0.34% against a basket of foreign currencies with a 101.448 settlement following overnight data from China showing stronger-than-expected gross domestic product and a surge in retail sales. China's National Bureau of Statistics reported first quarter annualized growth of 4.5%, up from 2.2% in the fourth quarter 2022, and seen on pace to reach a 5.5% growth rate later this year. Retail sales surged a more-than-expected 10.6% in March, with the sales growth driven by domestic consumption rather than exports.

"The combination of a steady uptick in consumer confidence as well as the still-incomplete release of pent-up demand suggest to us that the consumer-led recovery still has room to run," Oxford Economics China economist Louise Loo said.

The dollar weakness was realized despite bullish comments on U.S. monetary policy from St. Louis Federal Reserve President James Bullard, who maintains a view that the federal funds rate needs to increase another 75 basis points to a 5.5% to 5.75% target range to lower inflation. According to CME Group's FedWatch Tool, there's an 87% probability for the Federal Open Market Committee to lift the federal funds rate 25 basis points to a 5% to 5.25% target range when they meet May 2-3. The FedWatch Tool shows most participants do not expect additional rate hikes following the May meeting.

At settlement, NYMEX May WTI futures were up $0.03 at $80.86 per barrel (bbl) ahead of expiration at Thursday's closing bell, with the June contract ending at $80.90 per bbl. ICE June Brent futures settled $0.01 higher at $84.77 per bbl. NYMEX May RBOB futures settled down $0.0231 per gallon at $2.7509 per gallon, continuing a retreat from last week's $2.8943 better-than-five-month high on the spot continuous chart. May ULSD futures settled down for the fourth consecutive session, falling $0.0148 to a $2.599 gallon four-week low on the spot continuous chart.

The mixed close comes ahead of the 4:30 p.m. EDT release of inventory data from the American Petroleum Institute for the week ended April 14. According to the Wall Street Journal, the market expects across the board stock drawdowns took place last week. Crude inventory is estimated to have declined by 500,000 bbl, gasoline is seen to have fallen by 1.2 million bbl, and distillate stocks are anticipated to have been drawn down by 900,000 bbl.

On Monday, the Department of Energy reported a 1.6-million-bbl release of crude oil from the Strategic Petroleum Reserve during the week ended April 14, which follows a 1.6-million-bbl disbursement during the first week of April. DOE will continue to release crude oil from the SPR through the second quarter in fulfilling a congressional mandate, with another 22.4 million bbl set to be disbursed by June 30.

Brian L. Milne can be reached at brian.milne@dtn.com