DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate and ULSD futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange registered modest losses on Tuesday as investors digested weaker-than-expected macroeconomic data out of China, showing an accelerated slowdown in the nation's industrial production rate and retail sales activity, raising doubts about the trajectory of its post-COVID recovery.

Also on Tuesday, oil traders positioned ahead of the release of the U.S. weekly inventory report from the American Petroleum Institute scheduled for 4:30 p.m. EDT followed by official stock data from the U.S. Energy Information Administration Wednesday morning. U.S. commercial oil stockpiles are projected to have fallen by 800,000 barrels (bbl) for the week ended May 12, with estimates ranging from a decrease of 2.5 million bbl to an increase of 2.5 million bbl.

Expectations for a modest crude draw are due partly to a Department of Energy announcement on Monday indicating it disbursed another 2.4 million bbl of crude last week from the nation's Strategic Petroleum Reserve to the commercial side. That brings emergency crude supplies down to a more than 40-year low of 360 million bbl.

Gasoline inventories are expected to have declined by 1.3 million bbl from the previous week, according to analysts. Stocks of distillates, which are mostly diesel fuel, are expected to be unchanged from the previous week.

Refinery use likely increased 0.3% from the previous week to a 91.3% utilization rate. Estimates ranged from a 1% decrease to a 1% increase.

Oil futures came under selling pressure earlier on Tuesday after China's retail sales and industrial data for April broadly missed expectations as the world's second-largest economy continued to show an uneven path of recovery following years of draconian COVID shutdowns. The National Bureau of Statistics reported on Tuesday that industrial production rose 5.6% year-on-year compared to the 10.9% expansion expected by economists and a mere 1.7% above the March level. This follows the latest PMI data that showed business activity across China's manufacturing sector broadly fell into contraction in April for the first time since the lifting of COVID lockdowns in late 2022. China is a manufacturing-based and export-oriented economy that requires demand pull, especially from economies with the Organization for Economic Cooperation and Development to fuel its factory activity. Without adequate demand for manufactured products from Western countries, China is likely to struggle with the trajectory of its post-COVID recovery.

Against this backdrop, the International Energy Agency on Tuesday morning said it expects global oil demand would rise to a record 102 million bpd this year, 100,000 bpd more than it forecast last month. China's share of that increase, already expected to be large, appeared to be growing and "continues to surpass expectations," the IEA said in its monthly Oil Market Report.

The nation is estimated to have reached a record-high fuel consumption of 16 million barrels per day in March. IEA made no comments regarding China's weak economic performance at the start of the year.

On the supply side, IEA sees hefty crude production losses from Iraq's northern Kurdish region following the shutdown of the Iraq-Türkiye export pipeline, shut-ins caused by wildfires in Canada, and protests in Nigeria among other factors that have taken a large chunk of production offline. However, none of these unforeseen disruptions have prompted a spike in prices or triggered a visible decline in inventories, implying laggard demand.

At settlement, WTI for June delivery softened $0.25 to $70.86 per bbl, and international crude benchmark Brent for July delivery fell below $75 per bbl at $74.91 per bbl, down $0.32. NYMEX RBOB June futures added $0.0071 to $2.4791 per gallon, while ULSD June futures declined $0.0141 to $2.3639 per gallon.