Oil extends rally on upbeat U.S. economy, refinery outages

By Barani Krishnan

Investing.com -- Oil’s rally extended on Thursday as upbeat U.S. economic data helped crude futures rise while lower-than-usual refinery runs pushed up retail prices of gasoline at pumps across America.

New York-traded West Texas Intermediate, or WTI, crude for March settled up 86 cents, or 1.1%, at $81.01 per barrel. WTI has risen a cumulative 1.5% in the past two sessions after a weighted drop of 1.4% in the prior two days, resulting in a flat week thus far for the U.S. crude benchmark.

London-traded Brent crude for March delivery settled up $1.35, or 1.6%, at $87.47 per barrel. The global crude benchmark rose a total 1.6% over the past two days after a drop of 1.7% in the preceding two, resulting in a flat week as well for Brent, just like WTI.

Overall, WTI has risen about 1% for January and Brent almost 2% on bets of a pickup in demand from China, which announced at the start of this month an end to three years of COVID-related restrictions that had been weighing on energy usage in the world’s largest oil importer.

The China move aside, U.S. refinery runs have also fallen below seasonal norms due to inclement weather and unplanned outages that have sent retail gasoline prices rising after dropping to a one-year low in December.

Thursday’s rise in WTI and Brent came after a better-than-expected U.S. GDP number for the fourth quarter of last year, released earlier on Thursday by the Commerce Department. Q4 gross domestic product expanded by an annualized 2.9%, down from the year-on-year expansion of 3.2% in the third quarter, but still higher than Wall Street economists’ forecasts for a 2.6% growth.

GDP aside, U.S. durable goods orders for December came in twice more than expected, with a 5.6% gain. Sales of new homes in the United States rose for a third straight month in December after the Fed slowed its rate hike for the first time last month after aggressive monetary tightening since June.

The “better-than-expected U.S. GDP data supports the argument that the Fed could still deliver a soft-landing” to the economy versus fears of a recession, said Ed Moya, analyst at online trading platform OANDA.

“Improving news with China’s COVID situation and a resilient US economy should keep oil prices supported above the $80 region,” Moya added.

A rash of unplanned refinery outages have led to the pile up of crude on the market and boosted gasoline prices at the pump.

PBF Energy (NYSE:PBF), a refinery producing diesel in Chalmette, Louisiana, was shut after a fire on Saturday, with Reuters reporting on Tuesday that the disruption could last at least a month.

Exxon Mobil (NYSE:XOM), meanwhile, announced Monday that it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.

Scheduled maintenance could be lengthier than expected this season, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott disrupted some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has been offline since the storm.

Overhauls are also delayed by legacy problems caused by the now three-year-old coronavirus pandemic, with refiners reportedly planning twice as many overhauls this spring than usual.

The disruptions have caused crude inventories to swell by some 30 million barrels over the past five weeks and gasoline stockpiles to rise by around 10 million barrels, restraining the rally in both crude and gasoline futures. But they have worked in boosting pump prices of gasoline prices as the profit margin on a barrel of the leading automobile fuel for March delivery hit $36.88 on Wednesday, up from $34.91 last week, CME data showed.

The national average for a gallon at the pump has risen by eight cents since Monday to reach $3.50, the American Automobile Association, or AAA, said in a blog post on its website.

The AAA cited data from the government-run Energy Information Administration that showed gasoline demand having risen slightly to 8.14 million barrels per day last week to 8.05M/d in the prior week.

After winter storms at the end of 2022 that tighter supply, mild weather winter since “may have led to more drivers getting behind the wheel, pushing pump prices higher,” the AAA observed, adding that if demand remains robust, “drivers will likely see pump prices increase through the weekend”.

Hedging against that AAA projection, however, were forecasts that bitter cold weather typical to winter were likely to return from this week, driving Americans indoors instead.

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