Oil Softens after EIA Downgrades 2022, 2023 Demand Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- West Texas Intermediate futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange slipped in market-on-close trade Tuesday after U.S. Energy Information Administration revised lower its world oil demand forecast for the fourth consecutive month in August, citing protracted economic weakness and rising inflation across industrialized countries that are part of Organization for Economic Cooperation and Development.

In its Short-term Energy Outlook released this afternoon, Washington-based energy watchdog forecasted global oil demand would rise by 2.08 million barrels per day (bpd) this year, down from a 2.23 million bpd growth rate seen in its previous forecast, to 99.43 million bpd. The downward revision was mostly attributed to consumption weakness in OECD industrialized countries.

"Although supply disruptions have kept crude oil prices around $100 a barrel, crude oil prices have come down slightly in July as concerns of slower economic growth or a recession become more prevalent," said EIA its monthly outlook.

These concerns are reflected in the University of Michigan's survey of consumer sentiment, which recorded its lowest reading on record in June, with data going back to November 1952. Likewise, consumer sentiment in the Euro Area has decreased, reaching record lows in July.

On the supply side, EIA downgraded its 2022 production forecast to 100.21 million bpd this year, down 210,000 bpd from July outlook, mostly driven by output losses within Organization of the Petroleum Exporting Countries.

U.S. crude oil production in seen growing to 11.9 million bpd this year and 12.7 million bpd in 2023, which would set a record for most U.S. crude oil production in a year. The current record is 12.3 million bpd set in 2019.

Earlier in the session, both the U.S. and international crude benchmarks got a leg up on media reports suggesting Russia suspended oil shipments through the southern leg of the Druzhba pipeline, effectively cutting supplies to three Central European countries - Hungary, Czech Republic, and Slovakia. Transneft, a sanctioned energy giant that controls transit through much of the Druzhba network, claimed on Tuesday that a transit fee for August was returned to buyers after European sanctions blocked the company's access to the funds. Hungary's major refiner MOL said it had initiated talks for alternative payment schemes aimed at restarting crude flows.

"Although Mol has enough reserves for several weeks, it is working on a solution," the refiner said in a statement.

Mol's Slovak unit Slovnaft and Czech crude pipeline operator Mero said in separate statements that they expect flows to be restored within days.

In late July, the European Council said they would allow transactions needed for Russian state-owned oil companies to sell oil to European refiners and traders, but it remains unclear if Transneft was included on the list.

"With a view to avoid any potential negative consequences for food and energy security around the world, the EU decided to extend the exemption from the prohibition to engage in transactions with certain state-owned entities as regards transactions for agricultural products and the transport of oil to third countries," a statement from the council read.

Also on Tuesday, oil traders positioned ahead of the release of U.S. inventory data from the American Petroleum Institute scheduled for 4:30 PM ET, followed by official report by the EIA Wednesday morning. Commercial crude oil inventories are projected to have increased by 200,000 barrels (bbl) for the week ended Aug. 5, with estimates ranging from a decrease of 1.6 million bbl to an increase of 3 million bbl. Gasoline stockpiles are expected to have decreased by 500,000 bbl from the previous week, while distillate stocks are seen having declined by 500,000 bbl. Refinery use likely rose 0.5% from the previous week to 91.5% of capacity.

At settlement, nearby month delivery WTI slipped $0.26 to $90.50 bbl, and the ICE Brent contract for October delivery fell $0.34 to $96.31 bbl. NYMEX September RBOB gained 7.4 cents to $2.9602 gallon, while NYMEX September ULSD contract rallied 15.47 cents to $3.3338 gallon.

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

Liubov Georges