Petroleum futures rose Aug. 11 after the International Energy Agency hiked its demand growth estimate for 2022, citing power generation and industrial demand.
NYMEX front-month crude settled at $94.34/b, up $2.41, while ICE front-month Brent settled up $2.20 at $99.60/b.
NYMEX front-month ULSD rallied 7.37 cents to settle at $3.484/gal, while NYMEX front-month RBOB settled 12 points higher at $3.0715/gal.
The IEA hiked its 2022 oil demand growth estimate by 380,000 b/d to 2.1 million b/d thanks to what it called "soaring" oil use in power generation and gas-to-oil switching in the industry as a result of surging gas prices.
The IEA kept its 2023 oil demand growth estimate unchanged at 2.1 million b/d.
European refiners are increasingly moving away from the higher-priced natural gas and using oil products for energy and hydrogen production, the IEA said. A number of oil companies, including Shell's Rotterdam and Rheinland refineries, BP European refiners, and Italy's Eni refiners, said in recent quarterly reports they are reducing the use of natural gas.
Refined products crack spreads had eased since mid-July as global refiners exited maintenance, boosting gasoline, diesel, and jet production. However, diesel crack spreads have rallied this week on continued supply tightness heading into winter.
The NYMEX front-month ULSD crack spread vs ICE Brent was trading around $46.30/b late Aug. 11, up from $36.09/b Aug. 8. The NYMEX front-month RBOB crack spread was trading around $18.63/b, up from $14.64/b Aug. 8.
US distillate stocks climbed 2.17 million barrels last week to 111.49 million barrels, US Energy Information Administration data showed Aug. 10, but while the deficit to the five-year average tightened slightly on the week, inventories were 24% below the five-year average.
And stocks on the US Atlantic Coast at 26.4 million barrels were 47% below the five-year average, supportive of the New York-delivered NYMEX ULSD contract.
Refiners should be increasing production as they exit maintenance and are lured by high margins.
According to S&P Global data, global CDU outages are expected to fall to 8.15 million b/d in August, trending down from 13.5 million b/d in April.
But outages are expected to climb to 11.3 million b/d in October. And Europe, which is heavily dependent on Russia for diesel fuel, is looking to secure supplies ahead of a ban on Russian barrels due to take effect in early 2023.
Stocks of diesel and gasoil in the Amersterdam-Rotterdam-Antwerp hub are now up 29% on the year, according to Insights Global Data. But that's because low water levels along the Rhine river have restricted barge loadings, leaving inland buyers short of supply.
One trader in Switzerland said Aug. 11 "we are trying to survive here," adding that the country is almost completely reliant on strategic stock releases and production from the sole Swiss refinery.
Demand for diesel is holding up in Latin America, which is heavily dependent on imports, primarily from the US. Kpler vessel tracking software shows Latin America importing 30.2 million barrels of diesel so far in August, already exceeding July's 29.6 million barrels.
US inflation cools
Sentiment in the broader financial markets received a boost after US consumer prices for July came in unchanged on the month, according to the US Labor Department, one of the most significant signs yet that inflation was starting to cool, with oil prices down more than 20% from their highs n June.
On the year, however, the CPI remains high, with an increase at 8.5%, down from 9.1% for June.
The easing print could see the US Federal Reserve take its foot off the pedal in its battle against inflation through outsized interest rate hikes.
"The slower-than-expected pace of inflation cooled investor expectations of future rate hikes and eased concerns of weaker economic growth," ANZ Research analysts Brian Martin and Daniel Hynes wrote in a note. ING analysts noted, however, that core inflation will likely remain elevated with the labor market still tight.
"Ongoing falls in gasoline will mean the headline rate falls further in August, but core inflation is likely to be stickier due to labor costs and will keep the Fed firmly in tightening mode," said ING's chief international economist James Knightley.