DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange reversed early gains to settle Thursday's session lower on reports of a potential ceasefire between Israel and Hamas that is likely to ease geopolitical tension in the Red Sea -- a vital water passage for global oil trade.

The Jerusalem Post reported this afternoon that Hamas has given initial approval for the ceasefire agreement in Gaza accompanied by the release of hostages captured on Oct. 7. According to the report, Israel also approved a truce proposal discussed last week in Paris and Doha with the mediation of Qatari and Eqyptian governments. While no further talk details were made public, the negotiations over a Gaza ceasefire will certainly ease tensions across the Middle East that have kept oil markets on edge in recent weeks.

Iran-aligned Houthis militia have relentlessly attacked commercial shipping in the Strait of Bab al-Mandab, forcing several major shipping companies to divert vessels around the southern tip of Africa. While supplies have not been disrupted, the diversion has increased costs and shipping times, feeding into inflation expectations.

Oil futures were boosted earlier in the session after OPEC+ ministers reaffirmed production cuts of 2.2 million barrels per day (bpd) through the first quarter, noting the decision of a further extension of their reduced output quota would be announced in early March. The conformity to pledged production cuts is surprisingly high, according to market sources, as producers aim to block attempts to rebalance physical supplies with weak demand fundamentals.

The lion's share of the reduced production comes from Saudi Arabia with the kingdom agreeing to extend a unilateral 1 million bpd cut for output of 9 million bpd through March 31. This week, Saudi Arabia's government ordered state-owned oil company Saudi Aramco to end its plan to expand production capacity by 1 million bpd to 13 million bpd which was announced in 2020.

The directive raised doubt over the bullish demand outlook laid out by OPEC with Saudi Arabia seen as the de facto leader of the producer group. In its latest Monthly Oil Market Report, OPEC forecast global oil consumption will expand by a healthy 2.2 million bpd this year with 2 million bpd of the growth realized in developing economies. For 2025, OPEC anticipates a modest reduction in the growth rate to 1.8 million bpd.

Further weighing on the oil complex, the U.S. Energy Information Administration's inventory report released Wednesday was mostly bearish for the oil complex, showing commercial crude oil inventories unexpectedly increased last week as crude production rebounded and refinery runs continued lower following disruptions from an arctic blast in January.

Refinery runs turned sharply lower during the week ended Jan. 26, falling 2.6% to the lowest run rate since December 2022 at 82.9% of capacity. Domestic refineries processed 428,000 bpd less crude compared to the previous week's average of 15.276 million bpd. Gulf Coast refineries decreased crude throughputs for the second straight week to 7.758 million bpd, likely reflecting an earlier start to the spring maintenance season. Domestic oil production, meanwhile, rebounded much quicker than initially expected with operators recovering 700,000 bpd of shut-in crude from the prior week to lift output to 13 million bpd.

At settlement, the front-month West Texas Intermediate declined $2.03 to $73.82 per barrel (bbl) while the new front-month Brent April contract dropped back $1.86 to $78.70 bbl. NYMEX March RBOB futures fell $0.0364 to $2.1948 gallon and the March ULSD contract slid $0.0723 to settle at $2.7129 gallon.

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