DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the last trading day of the month and second quarter modestly higher, lifting the international crude benchmark above $75 per barrel (bbl). The gains came amid ongoing production cuts from the Organization of the Petroleum Exporting Countries, Russia and nine allied partners that, despite having gradually reintroduced some of those output cuts into the global oil market during the first half of the year, have nonetheless led to a growing supply shortfall, highlighted by sharply falling U.S. crude oil inventories.

Both the West Texas Intermediate and Brent contacts advanced more than 19% in the second quarter -- a vertiginous rise propelled by a multitude of bullish factors, including strength in global financial markets, recovery in fuel demand in countries that are part of the Organization for Economic Cooperation and Development, and ongoing restraint by U.S. oil producers. Wednesday's inventory report showed domestic production stalled near 11 million barrels per day (bpd), about 2 million bpd below the pre-pandemic high even as oil prices surged above $70 per bbl in a sign that operators are delivering on their pledges of capital restrains. Scott Sheffield, CEO of Pioneer Natural Resources, one of the largest shale producers, said that he is confident that producers will not respond even as oil breaks $80 per bbl.

OPEC+ has returned crude production shut-in during the height of the pandemic in the second quarter 2020 cautiously, bringing back about 2.1 million bpd of crude output in the first half of the year from 7.5 million bpd in cuts in December. Saudi Arabia in the first quarter volunteered an additional 1 million bpd in a unilateral cut by the kingdom atop of its agreed production quota, further tightening supply availability on the global oil market.

International Energy Agency estimates OECD commercial oil stockpiles fell below the 2015-2019 average in the second quarter, and oil held in floating storage dropped to the lowest level since February 2020. OPEC+ forecasts global oil demand to rise by 6 million bpd this year, with 5 million bpd of the annual increase to be realized during the second half of 2021, according to a statement from their Joint Technical Committee.

Against this backdrop, OPEC+ is widely expected to bring back between 500,000 bpd and 1 million bpd of restrained production next month, although some cartel watchers said there is talk of no increase. Should OPEC+ decide on no further increase at Thursday's meeting, oil prices would skyrocket well above $80 bbl this summer, according to analysts.

Oil complex was boosted this morning after Energy Information Administration reported U.S. crude oil inventories fell for the sixth consecutive week through June 25th to about 6% below the five-year average, while oil exports held above 3 million bpd for a third week in a row. The larger-than-expected draw came as domestic refiners processed 16.229 million bpd of crude oil last week -- the second-highest weekly rate in 2021. Refinery utilization jumped 0.7% to 92.9% -- the highest run rate since the last week of 2019. U.S. crude imports declined 537,000 bpd from the previous week to 6.406 million bpd, while exports gained to 3.717 million bpd -- the fourth-highest weekly export rate in 2021.

Gasoline stockpiles posted an unexpected build last week, up 1.5 million bbl from the previous week to 241.6 million bbl, bringing inventories roughly in line with the five-year average. Earlier in the week, analysts called for gasoline stocks to have decreased by 1.2 million bbl. Gasoline supplied to the U.S. market, a measure for demand, unexpectedly fell 223,000 bpd but held above 9 million bpd at 9.173 million bpd.

On the session, NYMEX August WTI advanced $0.49 to settle at $73.47 per bbl. ICE August Brent crude futures expired $0.37 higher at $75.13 per bbl, with the September Brent contract settling $0.34 higher at $74.62. NYMEX July RBOB futures gained 0.54 cent to expire at $2.2444 gallon, with the August contract little changed with a $2.2418 settlement. July ULSD futures expired at $2.1287 per gallon, with the August contract settling near parity at $2.1283 per gallon.

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