Crude oil surges to YTD highs on U.S. economic strength, continued global turmoil

Crude oil climbed ~3% on Thursday to settle at its best levels this year after the U.S. economy showed faster than expected growth and as shipping disruptions in the Red Sea persisted.

The U.S. government said its advance estimate showed gross domestic product increased at a 3.3% annualized rate in Q4, well above the consensus forecast of 2% growth, supporting a strong outlook for energy demand.

Supply concerns were sparked by reports of a large fire at a 240K bbl/day Rosneft refinery in the Russian town of Tuapse and new Houthi missile attacks on ships in the Red Sea.

Shipping company Maersk (OTCPK:AMKBF) (OTCPK:AMKBY) said explosions forced two ships carrying U.S. military supplies to retreat from the Bab-al-Mandab strait off the Yemen coast, which is a major chokepoint for global oil supply.

“We are finally seeing energy markets wake up to the distinct possibility that these supply chain disruptions will rumble on for months yet,” Scope Markets chief market analyst Joshua Mahoney told Reuters.

Front-month Nymex crude (CL1:COM) for March delivery ended +3% to $77.36/bbl, its highest settlement since December 29, and front-month March Brent crude (CO1:COM) also closed +3% to $82.43/bbl, its best level since November 30.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

Energy (XLE) was the day’s top gaining S&P sector, +2.2%, with strong leadership from heavyweights Exxon Mobil (XOM) and Chevron (CVX), both +2.5% in Thursday’s trading.

Oil built on gains from the previous session after the Energy Information Administration reported a much larger than expected 9.2M-barrel drop in U.S. crude inventories alongside a five-month low in domestic crude production to 12.3M bbl/day.

Prices also were supported on hopes for a recovery in China’s economy after the central bank announced a deep cut in bank reserves on Wednesday.