DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Tuesday's session higher after the U.S. Energy Information Administration estimated OPEC+ production cuts, deepened to 2.2 million barrels per day (bpd) from the beginning of January until the end of March, will lead to global inventory draws during the first quarter, while steering the oil market to a relatively balanced disposition for the remainder of the year.

In its Short-term Energy Outlook released Tuesday afternoon, EIA forecast global oil inventories would decrease by 800,000 bpd during the first three months of the year before gradually returning to a building pattern through the end of December. The Washington-based energy watchdog estimates global oil inventories will increase by an average of 100,000 bpd in the final three quarters of 2024 and by an average of almost 500,000 bpd in 2025.

"We expect that the falling inventories in 1Q24 will increase oil prices into the mid-$80/b range, before slight downward price pressures emerge through the remainder of our forecast. We forecast the Brent crude oil price will average $81/b in December 2024 and fall to $78/b by December 2025," said EIA.

For the United States, EIA estimates crude production reached an all-time high of 13.3 million bpd in December. However, crude output fell to 12.6 million bpd in January because of shut-ins related to extreme cold weather. The agency forecasts production will return to almost 13.3 million bpd in February but then decrease slightly through the middle of 2024 and not exceed the December 2023 record until February 2025.

Also Tuesday, oil traders positioned ahead of weekly inventory data in the United States, beginning with the industry survey from the American Petroleum Institute scheduled for 4:30 p.m. EST, followed by an official report from the EIA Wednesday morning.

Consensus of analysts and traders surveyed by the Wall Street Journal reveal commercial crude stockpiles likely rose by 1.3 million barrels (bbl) during the week ended Feb. 2. At 421.9 million bbl, commercial stockpiles currently stand about 5% below the five-year average. Gasoline inventories are expected to have edged up by 300,000 bbl in the reviewed week, while distillate stocks are seen to have drawn down 2 million bbl.

Refinery capacity use likely rose 2.5% from the previous week to 83.3%. A combination of poor weather conditions and an early start to the maintenance season pressed U.S. refinery runs at the end of January to the lowest run rate since December 2022.

Earlier in the session, oil futures came under mild selling pressure after Saudi Arabia's state-owned oil company, Aramco, left official selling prices for March loadings to Asia unchanged near two-year lows, while prices for European and U.S. markets were also left largely steady.

The March price announcement could signal that physical market fundamentals are not as robust as investors had anticipated heading into the spring months. Most market observers had expected Saudi Aramco to lift its OSPs for the Asian buyers by at least $0.50 over the Oman/Dubai average. Aramco made its biggest cut in 13 months to the Asian OSPs for February cargo loadings.

For March loadings, Saudi Aramco set official selling price for Arab Light to Asia at $1.50 bbl over the Oman/Dubai average, same level as the previous month.

For Northwest Europe, Arab Light was also left unchanged at $0.90 bbl over ICE Brent futures, while Medium Arab was held at a $0.20 bbl premium.

Arab Light cargoes to the U.S. Gulf were set at $7.10 bbl premium over the Argus Sour Crude Index (ASCI) versus $7.15 bbl in February, while Medium was at $5.85 bbl and Heavy at $5.40 bbl premium, both unchanged from the previous month.

At settlement, West Texas Intermediate futures for March delivery advanced $0.53 to $73.31 bbl, while international crude benchmark Brent April futures moved $0.60 higher to $78.59 bbl. NYMEX March RBOB futures added $0.0081 to $2.2173 gallon, while the March ULSD contract gained $0.0179 to $2.7427 gallon.

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