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WTI hits two-year high on improved demand outlooks, weaker dollar

Highlights

US driving activity hits fresh nine-month high

Europe eases pandemic restrictions

China April throughputs rise

New York — Crude futures settled higher May 17 as a weaker dollar and signs of continued demand recovery in the US and Europe overshadowed renewed demand concerns in Asia.

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June NYMEX WTI settled 90 cents higher at $66.27/b and ICE July Brent climbed 75 cents to settle at $69.48/b.

Oil futures found support in early US trading amid a market focus on the continued US recovery narrative.

Mobility data provided by Apple shows that US driving activity was up around 1% last week at a fresh nine-month high of 142.04% of the January 2020 baseline.

It was the highest settle for front-month WTI since April 23, 2019, while front-month Brent last settled higher on March 11.

June NYMEX RBOB was up 3.17 cents to settle at $2.1583/gal and July ULSD climbed 2.42 cents to $2.0604/gal.

Meanwhile, total US crude oil stocks are expected to have declined 2.9 million barrels to around 481.8 million barrels in the week ended May 14, analysts surveyed by S&P Global Platts said May 17. This third weekly drawdown in stockpiles would leave inventories around 2.5% behind the five-year average of US Energy Information Administration data, opening the widest deficit since the week ended March 20, 2020.

Adding further upward price pressure was a weaker US dollar. The ICE US Dollar index fell to around 90.173 in afternoon trading and was on pace for the lowest close since May 11, when the index hit a 10-week low.

In Europe, a steady stream of nations relaxing pandemic restrictions has underscored a bullish narrative for Atlantic basin energy demand this summer.

France on May 15 reached a milestone of vaccinating roughly 30% of its population, and the government is set to push back a nationwide curfew and ease restrictions on museums, theaters, concert halls and theaters beginning May 19.

The Italian government has also announced it will push back its curfew in certain areas beginning May 18, and on May 16 announced that it would no longer require quarantine for visitors arriving from the EU, US or Israel.

But the tightening of COVID-19 restrictions in Singapore and Taiwan, and the extension of the state of emergency in Japan highlighted the worries about the coronavirus situation in Asia, while the surge in cases in India was beginning to filter through to oil product demand figures, ING analysts said in a note.

"Preliminary data from the three largest fuel retailers in India show that road fuel demand over the first half of May was down by around 20% from the previous month," they said.

Gasoline sales in India in April were around 2.14 million mt, an eight-month low, Avtar Sandu, senior commodities manager at Philips Futures, said in a note.

Still, Chinese energy demand remains a bright spot in the region. The nation's crude throughput in April rose 0.1% month on month to 14.15 million b/d, buoyed by improving domestic demand and a shortage of oil product supplies.

S&P Global Platts Analytics projects China's crude throughput to be above 14 million b/d in Q2, and to rise higher to about 14.5 million b/d in the third quarter.

"As we see it, the situation on the oil market is fairly stable at present, with robust demand offsetting the increased supply from OPEC+ and possibly also from Iran," Eugen Weinberg, Head of Commodities Research at Commerzbank said in a note.

"Not even the ongoing problems in India, the world's third-largest oil importer, will be able to derail the recovery of demand. Given the large number of short-term factors, we expect the volatile sideways trend of the oil price to continue."