DTN Oil

WASHINGTON, D.C. (DTN) -- Reversing early losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session with gains between 1.5% and 2.5% propelled by another weekly drop in the U.S. oil rig count and new import quotas for Chinese refineries that stand around 20% above 2022 levels, a signal of recovering fuel demand in the world's largest crude oil importer.

Wire services reported this week Chinese government issued a third batch of crude-oil quotas for independent refiners this year, with overall allowances up 20% in the first half of 2023 compared to the same period last year. According to sources, independent refiners in China were allotted a quota of 62.28 million tons for the remainder of the year, which has lifted total allowances to 123 million tons. For the full year 2022, independent refiners were allotted a quota of 195 million tons. This might suggest that Chinese fuel demand is finally picking up speed after a lackluster start to the year despite the country's reopening from COVID-19 restrictions.

The reopening fueled expectations for an increase in China's oil consumption, but recent macroeconomic data from the world's top crude oil importer have had forecasters and analysts concerned that demand may not be as strong as initially expected.

China's economic data released earlier this week showed retail sales slowed markedly over the past two months and industrial production increased only marginally compared to last year amid a sharp slowdown in exports.

Domestically, the number of active rigs drilling for oil declined again this week after a one-week uptick, falling for the sixth time in seven weeks through today, Baker Hughes data show. At 552, the number of oil rigs deployed declined by four for the week ended today to the lowest number in-service since the final week of April 2022. Versus a year ago, the rig count is down 32. Baker Hughes reports the number of natural gas rigs in operation also continued lower, falling five to 130 since the prior Friday, down 24 compared with the same week in 2022.

On the macroeconomic data front, inflation data out of the Eurozone showed consumer prices increased at 6.1% in May from a year earlier, with prices paid for food, tobacco and alcohol posting double-digit increases.

Stubbornly high inflation persisted despite the Eurozone having entered a mild recession earlier this year, with economic activity likely to take a bigger hit as ECB works to put a lid on inflation that has spread across the collective economy.

ECB policymakers on Thursday lifted the benchmark interest rate for the eighth consecutive meeting to 4% -- the highest borrowing rate in 22 years and signaled another move in July.

"Inflation has been coming down but is projected to be too high, for too long. Wage pressures are becoming an increasingly important source of inflation," said Christine Lagarde at a news conference Thursday morning following the rate decision.

A day after policymakers in Frankfurt raised borrowing costs, International Monetary Fund said in its outlook that strong euro-area consumer-price growth calls for more European Central Bank interest-rate hikes and a sustained "tightening bias."

At settlement, NYMEX July West Texas Intermediate futures, which settled Monday's (6/12) session at a $67.12 three-month low on the continuous chart, rallied $1.16 to $71.78 bbl, with the prompt spread in a $0.15 contango ahead of the June 20 expiration of the July contract. ICE August Brent futures advanced to $76.61 bbl after hitting a 19-month spot low settlement of $71.84 bbl on Monday.

Oil products futures also moved higher, which follows a plethora of refinery snafus, including a key gasoline unit at Phillip 66's 258,000 bpd Bayway refinery in Linden, New Jersey. Trade sources said the fluid catalytic cracking unit was shut Monday and is not expected to return to service until July 6. The Bayway facility is situated in the refinery short New York Harbor market, which is the underlying physical delivery location for RBOB and ULSD futures contracts.

NYMEX July ULSD futures gained $0.0718 to $2.5514 gallon and NYMEX July RBOB futures advanced to $2.6805 gallon, up $0.0388.

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