DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate and RBOB futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Tuesday's session higher, propelled by expectations for stronger demand gains this summer amid an ongoing upturn in U.S. business activity and signs of solid consumer discretionary spending ahead of the busy summer travel season, while the ULSD contract was an outlier, softening in afternoon trading.

U.S. business activity expanded at the sharpest pace in over two years in May, according to the S&P Purchasing Managers' Index survey, with the headline index jumping to a 13-month high 54.5. The reading was well above consensus for a 52.6-reading. The expansion was once again led by service providers, who reported stronger demand conditions heading into the summer months. Although manufacturers registered growth in production, it was only marginal and slowed from the previous survey period.

"While service sector companies are enjoying a surge in post-pandemic demand, manufacturers are struggling with over-filled warehouses and a dearth of new orders as spending is diverted from goods to services," said Chris Williamson, chief business economist with S&P Global Market Intelligence.

This shift in spending patterns, however, is supportive for U.S. gasoline demand that correlates closely with consumer discretionary spending.

American Automobile Association projects a 2.7 million or 7% increase in travel demand for the Memorial Day weekend, expecting 42.3 million Americans to travel 50 miles or more from their home. If realized, it would be the third busiest travel for the holiday, with AAA beginning its holiday travel outlook in 2000.

"More Americans are planning trips and booking them earlier, despite inflation. This summer travel season could be one for the record books, especially at airports," said Paula Twidale, senior vice president of AAA Travel.

Of that total, 37.1 million Americans expected to drive to their destinations, up more than two million or 6% from a year ago. Nearly 3.4 million travelers are expected to fly to their destinations over the weekend holiday, up 11% from 2022, and 170,000 more passengers or 5.4% higher than before the pandemic in 2019. If realized, air travel would be the busiest since 2005.

Tuesday's higher settlements in the oil complex also follow comments from Saudi Arabia's energy minister Prince Abdulaziz bin Salman, who again warned short sellers against taking on bearish positions.

The energy minister, speaking at the Qatar Economic Forum in Doha, told speculators looking to short the crude market to "watch out," or they would again be "ouching."

His comments come ahead of a planned meeting by the Organization of the Petroleum Exporting Countries on June 4. According to CME OPEC Watch Tool, 70% of investors expect no change to the group's production policy next month, however a growing number of speculators believe the Saudi-led coalition could surprise the markets once again by cutting crude output.

On April 2, OPEC announced a surprise production cut of 1.157 million bpd that took effect on May 1, but the output curb failed to support prices beyond a couple of weeks.

Also, on Tuesday oil traders positioned ahead of the American Petroleum Institute inventory survey, released 4:30 PM ET, followed by official data from the U.S. Energy Information Administration Wednesday morning.

U.S. crude oil inventories are expected to have risen by 700,000 bbl for the week ended May 19, with estimates ranging from a decrease of 3 million bbl to an increase of 2.9 million bbl. Expectations for a weekly increase are partly due to a Department of Energy report Monday indicating it disbursed another 1.6 million bbl of crude from the nation's Strategic Petroleum Reserve. That brings those emergency crude supplies down to a nearly 40-year low of 358 million bbl.

Gasoline inventories are expected to have declined by 1.3 million bbl from the previous week, while stocks of distillates are seen to have gained by 300,000 bbl. Refinery use likely increased by 0.7% from the previous week to 92.7% of capacity, which would be the highest level this year.

At settlement, WTI futures for July delivery were up $0.86 to 72.91 bbl, and ICE July Brent, the international crude benchmark, advanced to $76.84 bbl. NYMEX June RBOB futures were $0.0133 higher at $2.6622 gallon. Moving in an opposing direction, the June ULSD contract softened $0.0047 for a $2.3617 gallon settlement.

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