DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent on the Intercontinental Exchange settled Monday's session mixed, with the May West Texas Intermediate contract expiring at a $0.95 bbl premium to the June contract at $82.85 bbl.

ICE June Brent futures eased $0.29 with a $87 bbl settlement, reversing overnight losses after testing support at the $85.61 50-day moving average. Brent futures dropped back from a $92.18 bbl six-month high reached earlier in April bolstered by an expanding geopolitical risk premium in the international crude benchmark as Israel and Iran appeared poised for a direct military conflict. Tensions have been dialed back by both countries' leadership, easing the risk premium.

U.S. commercial crude inventory at a 459.993 million bbl 10-month high as of April 12 moved above the three-year average for the first time in 2024, data from the Energy Information Administration shows. Commercial stock levels increased 14.951 million bbl or 3.4% during the four-week period ended April 12, easing supply tightness.

The U.S. dollar softened, settling at a 105.913 three-day low in index trading against a basket of currencies, but holds near a 106.325 6-1/2-month intrasession high traded on April 16. The strength in the U.S. dollar, historically a drag for crude oil prices, is realized as expectations for interest rate cuts are pushed into the future. According to the CME FedWatch Tool, most investors do not expect a cut in the federal funds rate until the Federal Open Market Committee's September meeting, skipping past meetings in May, June, and July. And only a thin majority, 51.3%, expect two 25-basis point reductions in the key overnight bank borrowing rate, now in a 5.25% by 5.5% target range, in 2024.

An unexpectedly strong U.S. economy and resilient labor market have stoked inflation pressure, which is seen holding borrowing costs higher for longer. The Bureau of Economic Analysis on Thursday will release its advanced reading for first quarter U.S. gross domestic product growth, with expectations eyeing a 2.3% annualized expansion rate. While a slowdown from the 3.4% growth rate registered in the fourth quarter of 2023, the anticipated growth rate defies expectations in 2023 that the U.S. economy would slow down at a quicker pace this year due to higher interest rates. The Atlanta Federal Reserve Bank's GDPNow indicator expects a first quarter annualized GDP growth rate of 2.9%.

Economic growth lends support for diesel fuel demand, with the May ULSD futures contract settling Monday's session up $0.0191 at $2.5604 gallon, albeit reversing higher from a $2.5039 19-week low on the spot continuous chart. High interest rates have slowed home buying, which cuts into construction jobs, manufacturing activity has remained subdued, while freight hauling is stuck in a prolonged recession.

NYMEX May RBOB futures settled lower for a fourth consecutive session Monday, down $0.0249 at $2.6854 gallon, paring an intrasession decline to a $2.6649 gallon nearly six-week low on the spot continuous chart. The most recent Commitment of Traders report from the Commodity Futures Trading Commission released Friday afternoon shows speculators and money managers have reduced sizable long positions in the gasoline contract halfway through April. Weak demand compared with a year ago, down 168,000 bpd or 1.9% at 8.806 million bpd during the four weeks that ended April 12 according to EIA data, and a break below trendline support sustained the selling pressure on Monday.

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