Oil futures settled Thursday at their highest in two weeks, supported by signs of improving demand in the U.S. and improving economic data out of China.
Hot inflation readings, however, stoked expectations that global central banks will continue to tighten monetary policy aggressively, possibly setting the stage for a later economic downturn that could eventually dull energy demand.
Price action
-
West Texas Intermediate crude for April delivery
CL.1,
+0.42% CLJ23,
+0.42%
rose 47 cents, or 0.6%, to settle at $78.16 a barrel on the New York Mercantile Exchange, the highest front-month contract finish since Feb. 16, according to Dow Jones Market Data. -
May Brent crude
BRN00,
-0.20% BRNK23,
-0.20% ,
the global benchmark, climbed 44 cents, or 0.5%, at $84.75 a barrel on ICE Futures Europe — also the highest settlement in two weeks. -
April gasoline
RBJ23,
+0.69%
rose nearly 1% to $2.7003 a gallon, while April heating oil
HOJ23,
-0.25%
shed 0.3% to $2.8662 a gallon. -
April natural gas
NGJ23,
-0.82%
fell 1.6% to $2.765 per million British thermal units.
Market drivers
Crude followed through on gains seen the previous session, after upbeat readings on purchasing managers indexes for the manufacturing and services sector from China.
Still, “this China economic led oil-price rally is fighting against the tentative return of the king dollar trade, as the U.S. labor market still shows no signs of weakening,” said Edward Moya, senior market analyst at OANDA, in a market update.
The number of Americans who applied for unemployment benefits at the end of February fell slightly, holding below 200,000 for the seventh week in a row, data from the U.S. government released Thursday show.
“Normally, impressive U.S. labor data is good news for the argument for improving short-term crude demand drivers, but that is not the case right now,” said Moya. “The U.S. economy might have to deal with a much more aggressive [Federal Reserve], which could mean the economy might have to suffer something harder than a short and shallow recession later this year.”
Another strike against oil though is the inflation outlook for the eurozone, which might also force the European Central Bank to be “even more aggressive with tightening,” just like the Fed, he said.
Inflation across the countries that share the euro moderated by less than expected in February despite rapidly easing energy prices, adding to signs that price pressures are more persistent than previously thought.
Eurozone consumer prices rose 8.5% in February compared with the same month a year earlier, easing slightly from a 8.6% annual increase in January, preliminary data from the European Union’s statistics agency Eurostat showed Thursday. The reading topped the 8.2% consensus forecast from economists polled by The Wall Street Journal.
“Optimism surrounding China’s economic recovery are offsetting more hot inflation data in Europe and the U.S.,” which sparked further hawkish money flows early Thursday, said Tyler Richey, co-editor at Sevens Report Research.
“ “Optimism surrounding China’s economic recovery are offsetting more hot inflation data in Europe and the U.S.””
The Chinese government is “simultaneously raising their growth outlook for 2023, and considerably so,” he told MarketWatch. That’s “being seen as a balancing factor for any economic slowdown the West.”
Oil prices on Wednesday ultimately found support after data from the Energy Information Administration (EIA) on Wednesday showed a 1.2 million barrel rise in U.S. crude inventories. That was above some analyst estimates but the smallest increase since the week ended Jan. 20.
“There was a sense of relief for the bulls when comparing the oil headline to the API’s corresponding figure,” wrote analysts at Sevens Report Research, in a note.
“The details were net bullish as there was only an incremental 0.1% dip to 85.8% in the refinery utilization rate, less than the still admittedly modest 0.3% decline expected, while gasoline supplied, an implied measure of consumer demand, topped 9 million barrels a day (mbd) at 9.1 mbd for just the third time since early November,” they wrote.
Also on Nymex Thursday, natural-gas futures settled lower after U.S. supplies posted a weekly decline close to market expectations, but less than the five-year average.
The EIA reported Thursday that domestic natural-gas supplies fell by 81 billion cubic feet for the week ended Feb. 24.
On average, analysts forecast a decline of 79 billion cubic feet, according to S&P Global Commodity Insights, which pegged the five-year average drawdown for the period at a much larger 134 billion cubic feet.