OIL FUTURES: NYMEX WTI hits 2.5-year high as US demand outlooks soar

Crude futures settled higher May 27 as better-than-expected US unemployment data underscored bullish summer demand outlooks.

July NYMEX WTI settled up 64 cents at $66.85/b, and ICE July Brent was 59 cents higher at $69.46/b.

It was the highest front-month settle for WTI since October 2018, while ICE Brent was last higher on March 5.

US initial unemployment claims fell to 406,000 in the week ended May 22, Department of Labor data showed May 27, down nearly 9% from the 440,000 claims reported during the week prior and exceeding market expectations of around 425,000 new claims. It was the lowest number of initial claims since the week-ended March 14, 2020, DOL said.

NYMEX June RBOB climbed 17 points to $2.1518/gal and June ULSD was up 1.12 cents at $2.0564/gal.

The better-than-expected employment data underscored increasingly bullish US demand expectations.

US Energy Information Administration data shows US crude and refined product storages are below average as the nation approaches what is rapidly shaping up to be a relatively normal summer driving season.

Crude oil inventories in Cushing fell by around 1 million barrels during the week ended May 21, EIA shows, leaving stocks at the WTI delivery hub at the lowest since March 2020 at 44.76 million barrels. Gasoline stocks also decreased by 1.75 million barrels, while implied gasoline demand over the week averaged 9.48 million b/d, its strongest since March 2020.

"US demand appears to be making a dynamic recovery: at 9.5 million b/d, gasoline demand ahead of the summer driving season is only negligibly below the usual level for this time of year," Commerzbank head of commodity research Eugen Weinberg said in a note.

Market analysts said that crude oil prices were drawing support from optimism that a faster pace of global COVID-19 vaccinations will lead to an easing of pandemic restrictions, in turn boosting economic activity and energy demand.

"Strength in Chinese crude oil demand has also been bullish for prices. China processed a record 232 million mt of crude from January to April, up 12% from the same period in 2019 prior to the pandemic," said Avtar Sandu, senior commodities manager at Philips Futures, in a May 27 note.

These signs of stronger demand helped the market shrug off lingering concerns about the return of Iranian supply. The fifth round of talks to revive the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action, are ongoing in Vienna, but Iranian Foreign Ministry spokesman Saeed Khatibzadeh has said that differences remain.

Analysts estimate that the return of Iranian supply could provide an additional 1 million-2 million b/d to the market if a deal is struck, but increasingly bullish demand outlooks are likely to absorb these barrels, analysts said.

"While near-term sentiment may be dented by talk of a surge in supply or the prospect of a peaking global reflation narrative, the fundamental backdrop continues to support crude oil pricing," TD Securities analysts said in a note. "After all, a massive amount of pent-up demand for mobility should offset the supply increases this summer."