DTN Oil

CRANBURY, N.J. (DTN) -- U.S. dollar strength, which reached a fresh 5-1/2 month high of 106.235 in index trading against a basket of foreign currencies Tuesday morning, is a headwind for oil futures, although factors driving a strong dollar also lend support for fuel demand.

The Atlanta Federal Reserve Bank's GDPNow indicator's most recent reading Tuesday morning finds the U.S. economy grew at a 2.9% annualized rate in the first quarter with consumer and government spending and an expanding labor force driving economic growth. That's up 0.5% from April 12, lifted to 2.8% on Monday following robust retail sales in March and upward adjustments in February. Tuesday's 0.1% uptick follows data from the Federal Reserve showing manufacturing output in the United States expanded more than expected in March.

The Fed's monthly reading put manufacturing output up 0.5% last month against expectations for a 0.3% growth rate and revised February's production rate up 0.4% to 1.2%. U.S. industrial production gained 0.4% in March, which was expected, with the Fed revising February's figure to 0.4%, up from 0.1%.

These measures suggest demand for diesel fuel should be stronger with distillate fuel supplied to the U.S. market during the four weeks ended April 5 down 349,000 barrels per day (bpd) or 8.9% at 3.573 million bpd, according to data from the Energy Information Administration. NYMEX May ULSD futures have retreated from a $2.7945 gallon high traded in early April, with the May to September calendar spread moving into a $0.0190-gallon contango.

Digging into Tuesday's Fed report highlights divergence among sectors, with motor vehicles and parts manufacturing activity up 3.1% in March while the index for construction supplies fell 1%. The index for furniture manufacturing also declined in March, reflecting weak home sales and sluggish home building, a big driver in demand for diesel fuel. Total U.S. industrial production in March was unchanged against a year ago, while capacity utilization at 78.4% in March was 1.2% below the long-run average, from 1972 to 2023, according to the Fed.

Consumer spending strength bodes well for driving demand, with NYMEX RBOB futures trading on either side of its trendline for the uptrend from the 2022 low, now at $2.8076 gallon. Yet, gasoline demand is trailing year ago both cumulatively in 2024, down 0.8% at 8.556 million bpd, while 241,000 bpd or 2.7% less than a year ago at 8.843 million bpd during the four weeks ended April 5, EIA data shows.

Vehicle efficiencies are clearing restraining gasoline demand, with the Federal Highway Administration on Monday reporting vehicle miles traveled on U.S. roadways up 0.6% in January-February against a year ago. Traders will evaluate the trend heading into the summer months, and whether consumer spending underpins road travel, or if the cumulative effect of inflation and higher interest rates further slows year-on-year gasoline demand.

Late morning in New York, NYMEX May RBOB futures were up $0.0205 at $2.8044 gallon, and May ULSD futures were flat at $2.6555 gallon. NYMEX May West Texas Intermediate futures were little changed at $85.50 bbl, and ICE June Brent was unchanged at $90.10 bbl.

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