WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied in afternoon trade Tuesday after the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration downgraded the global supply outlook through 2023, driven by sharp revisions to Russian oil production, which has been hammered by the sanctions levied by Western governments since Vladimir Putin's invasion of Ukraine on Feb. 24.
In its Short-term Energy Outlook released Tuesday afternoon, EIA forecast Russian oil production would fall by 1.7 million barrels per day (bpd) from February through the end of 2023. Russia's oil production averaged 11.23 million bpd in March, according to OPEC's secondary sources, some 500,000 bpd below February's output rate. Private surveys, however, peg Russian output a tad above 10 million bpd.
Such a staggering loss of Russian barrels is bound to weigh on the global supply outlook in the near-term while further supporting oil prices. Accelerated growth in U.S. oil production, seen at 12 million bpd this year, could only partially offset the expected decline in Russia's output.
On the demand side, OPEC and EIA sharply cut global fuel consumption through 2023, citing renewed weakness across developing countries and the COVID outbreak in China. OPEC shaved 500,000 bpd off global demand projections for this year for demand growth of 3.7 million bpd, mostly reflecting the downward revision in world economic growth expectations. EIA made a more aggressive call on demand destruction, cutting 2022 consumption expectations by 810,000 bpd from the previous month's outlook.
The sharp revisions in the outlooks come against a backdrop of surging inflation in the United States and elsewhere. The Department of Labor reported Tuesday morning that the U.S. consumer price index climbed 1.2% from February to March, bringing the annualized rate of inflation to the highest level since 1982 at 8.5%. Rising consumer prices have been unrelenting, with six straight months of inflation above 6%, which is well above the Federal Reserve's 2% target.
Internationally, China's producer price index, which measures factory inflation, increased 8.3% on an annual basis, according to government data released on Monday, threatening to exacerbate rising prices for manufactured goods worldwide. China's CPI, which tracks the cost of everyday goods and services, also rose above expectations, albeit by a modest 1.5% year-on-year compared with 0.9% in February.
Rising prices for everyday goods and services highlight rising challenges for the world's second largest economy, which is struggling to control the latest COVID-19 outbreak to date. China's Premier Li Keqiang warned on Monday that China would have to step up imports of food to replenish its stockpiles in coming months, which is going to put additional pressure on global inflation.
"Economic pressures are increasing. Because of lockdowns, food prices are going to rise further," said Li Keqiang.
The World Bank slashed China's 2022 growth forecast, estimating gross domestic product would grow 5% this year, down sharply from last year's 8.1% expansion rate.
Separately, U.S. crude oil stockpiles are expected to have increased by 400,000 barrels (bbl) for the week ended April 8. Gasoline stockpiles are expected to have fallen by 600,000 bbl, and stocks of distillates are seen to have posted little change from the previous week.
Refinery use likely rose by 0.3% to 92.8% of capacity.
The American Petroleum Institute is scheduled to release its weekly inventory report 4:30 p.m. EDT, followed by official data from the EIA at 10:30 a.m. EDT Wednesday.
On the session, NYMEX May West Texas Intermediate futures advanced $6.31 to $100.60 bbl, and the ICE June Brent contract rallied $6.16 to $104.64 bbl. NYMEX May RBOB gained 15.07 cents to $3.1538 gallon, and May ULSD jumped 19.67 cents to $3.4644 gallon.
Liubov Georges can be reached at email@example.com