DTN Oil

WASHINGTON (DTN) -- Following choppy trading for most of the session, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange eked out solid gains during the afternoon session Tuesday as market participants await a U.S. response to a deadly drone attack on a military outpost in Jordan as the Biden administration weighs options on how to retaliate against Iran-backed militias without triggering a wider conflict in the Middle East.

John Kirby, Coordinator for Strategic Communications for the National Security Council, told reporters aboard Air Force One Tuesday that the United States is considering a "tiered approach, not a single action, but essentially multiple actions" in response to Sunday's attack on a U.S. military base that left three service members dead and dozens injured. There have been more than 159 attacks on U.S. troops in the Middle East since the outbreak of the Gaza War on Oct. 7.

President Joe Biden on Tuesday said he "has made up his mind about the response," but did not provide any details on whether the United States would hit targets in Iran or its proxies across the region. Iran has either backed or sponsored over a dozen militia groups operating throughout the Middle East, including in Iraq, Syria, Lebanon, and Yemen.

Preliminary evidence suggests the drone strike that killed three U.S. servicemembers on Sunday was launched from Iraq by the "Islamic Resistance of Iraq," an umbrella group backed by Iran.

Domestically, oil traders await the release of weekly U.S. inventory reports beginning with a private survey from the American Petroleum Institute scheduled for 4:30 PM ET, followed by the official data from the U.S. Energy Information Administration Wednesday morning.

Consensus of analysts surveyed by the Wall Street Journal reveal commercial crude stockpiles likely fell by 800,000 bbl during the week-ended Jan. 26. This would follow an outsized 9.2 million bbl drawdown reported in the prior week that pressed nationwide inventories to 5% below the five-year average. In refined fuels, gasoline inventories are seen to have increased 1.4 million bbl, while distillate supplies are expected to have fallen 800,000 bbl in the reviewed week. Refinery runs are seen to have risen 1.7% for the week ended Jan. 26 to 87.2% of capacity, according to the survey.

The muted start to Tuesday's trading session came as market participants digested the latest economic data out of the Eurozone, showing the 19-country bloc narrowly missed a recession last year. The Eurozone's gross domestic product was essentially flat at 0% during the final three months of 2023, following a 0.1% contraction reported in the second quarter, showed data released overnight from Eurostat. A rebound in the peripheral economies of Belgium, Spain, and Portugal, helped to mitigate a depressed growth across Europe's largest economies -- Germany and France. Germany in particular has become "Europe's sick man," having reported a contraction for the second consecutive quarter.

A combination of high energy prices, slowing global trade, and record-breaking interest rates have been a drag on an export-oriented manufacturing-based German economy last year and the outlook doesn't look so bright in 2024. China, Germany's largest trading partner, is struggling to recover and return to its pre-pandemic growth rate and Russia, a former energy supplier for the German industries, has all but severed its trade ties with Berlin.

The International Monetary Fund forecasts Germany will be the only G7 economy that shrank in 2023, contracting 0.9%, while growth is expected to remain well below the average of 1.4% for advanced economies in 2024.

At settlement, the international crude benchmark Brent for March delivery gained $0.47 to $82.87 bbl, with the next-month April contract narrowing its discount to $0.37 bbl. WTI March futures increased $1.04 to $77.82 bbl. NYMEX February RBOB futures advanced $0.0322 to $2.2607 gallon, with the front-month ULSD contract an outlier, declining $0.0271 to $2.8068 gallon.

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