DTN Oil

WASHINGTON (DTN) -- Following a data-driven rally in the previous session, oil futures on the New York Mercantile and Brent crude on the Intercontinental Exchange softened in early trade Thursday amid chatter Saudi Arabia and Russia are discussing a proposal for a joint output increase of around 1 million barrels per day (bpd) beginning in April, when members of Organization of the Petroleum Exporting Countries and 10 partners would boost crude production by 500,000 bpd as global oil demand is seen to have partially recovered from the 2020 disruption.

An internal document from OPEC+ analysts released this morning determined global oil demand would recover by 1.5 million bpd in April to 94.8 million bpd after averaging around 93.2 million bpd for the first three months of the year. Under a base case scenario, OPEC+ producers would raise production by 1.4 million bpd from their March level of 41.3 million bpd, capturing the growth in incremental demand. Industry insiders suggest OPEC+ is now in control of nearly all the global spare capacity as U.S. shale production is unlikely to return to its pre-pandemic level amid constrained CAPEX.

In early January, OPEC+ agreed to hold off adding new production with the exception of 75,000 bpd monthly increases in February and March by Russia and Kazakhstan, while Saudi Arabia pledged a unilateral 1 million bpd production cut for both months. Wire services Thursday morning suggest Saudi Arabia would cut its voluntary curtailment in half next month, while still withholding 500,000 bpd above its agreed quota of 1.881 million bpd.

"We must emphasize in strong terms: cautious optimism, cautious optimism, cautious optimism," OPEC'S Secretary General Mohammad Barkindo said this week ahead of Thursday's meeting, with the technical committee noting global oil demand remains under pressure amid ongoing quarantine measures in some of the world's major economies, including the European Union and Japan.

Despite those concerns, oil prices rebounded to pre-pandemic levels in late February after U.S. crude production took a major hit from Winter Storm Uri that triggered massive power outages and disrupted refinery production. The lingering effects of last month's unprecedented cold blast upon the U.S. petroleum industry permutated through inventory data released Wednesday by the U.S. Energy Information Administration, detailing massive swings in crude and refined products supplies. The data showed commercial crude stockpiles spiked 22.6 million barrels (bbl) during the final week of February, the largest build on record, which was offset by a 23.3 million bbl drawdown in refined fuels supplies. Gasoline stocks, in particular, saw a surprise 13.6 million bbl decline as demand for motor fuel rebounded to above 8 million bpd in the week reviewed. According to the Bureau of Transportation Statistics, the latest estimates of trips in the 1- to 25-mile range have surged -- nearly matching pre pandemic highs.

With refiners unable to process crude, run rates plummeted 12.6% from the previous week to a record low 56% and the Gulf Coast refinery utilization rate tumbling by more than 20% to 40.9%, with data going back to 1990. Analysts suggest these distortions in the U.S. petroleum industry are likely to linger for a while, with some of the crude production unlikely to return to the market while refiners might struggle to bring back processing units heading into spring.

In early trading, NYMEX West Texas Intermediate April crude traded slightly higher at $61.50 bbl and Brent crude futures for May delivery was flat at $64.20 bbl. NYMEX April ULSD contract declined 0.70 cent to near $1.8290 gallon and front-month RBOB futures fell 1.1 cents to near $1.9410 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com