DTN Oil

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the midweek session higher, with gains by oil products outpacing crude on sizable inventory draw downs amid reduced refining activity and greater demand.

Both distillate fuel and gasoline supplied to the U.S. market reached six-week highs last week, up 60,000 bpd to 3.817 million bpd and 663,000 bpd to 8.807 million bpd, respectively, during the week-ended Feb. 2, data released midmorning by the Energy Information Administration shows.

Greater demand for distillate fuels aligns with improving manufacturing activity in the United States, with the Institute of Supply Management on Feb. 1 reporting a 2% gain in January. Manufacturing activity remained in contraction for the 14th consecutive month in January, but strong economic growth could push the sector out of its malaise. The Federal Reserve Bank of Atlanta's GDPNow indicator points to a 3.4% expansion by the U.S. economy in the first quarter.

Big declines in product inventories contributed to buying support, with distillate fuel stocks down 3.22 million bbl to 127.574 million bbl during the week-ended Feb. 2, with inventory 9.564 million bbl or 7% below the five-year average. Distillate stocks have now drawn down for three consecutive weeks, declining 7.179 million bbl or 5.3% since Jan. 12.

U.S. inventory of gasoline was drawn down for the first week in 2024, down 3.146 million bbl from a 35-month high to 250.988 million bbl last week, EIA data shows, moving 1.7 million bbl below the five-year average.

NYMEX March ULSD futures rallied $0.0725 to a $2.8152 gallon settlement, and March RBOB futures gained $0.0457 in value with a $2.2630 gallon settlement.

A key component driving the inventory drawdowns was another decline in refinery activity, with the U.S. refinery run rate down 0.5% to 82.4% of capacity during the week-ended Feb. 2, a 13-month low. Runs fell for the third consecutive week due to unplanned refinery outages in the Midwest and an earlier start to seasonal maintenance following harsh winter weather in mid-January.

Reduced demand for crude oil by U.S. refineries, which averaged near 14.84 million bpd for a second week, and recovery in domestic production, up 300,000 bpd to match December's 13.3 million bpd record-high output rate, following well freeze-offs in January lifted commercial crude inventory. U.S. commercial crude inventory increased by a much higher than expected 5.52 million bbl to 427.432 million bbl during the week reviewed, narrowing a deficit against the five-year average by 6.392 million bbl to 15.914 million bbl.

The crude contracts were lent support by ongoing geopolitical tensions, and projections for a global shortfall between oil production and consumption in the first quarter. The latest attempt to reach a ceasefire agreement between Israel and Hamas was rejected Wednesday while Houthi militants in Yemen continue to threaten commercial shipping in the Red Sea. On Tuesday, EIA projected global oil inventory would be drawn down 800,000 bpd in the first quarter as ongoing production cuts by OPEC+ tighten the market disposition.

NYMEX March WTI futures settled $0.55 higher at $73.86 bbl, with the April contract holding a modest $0.05 premium to the front month contract. ICE April Brent futures settled up $0.62 at $79.21 bbl.

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