DTN Oil

CRANBURY, N.J. (DTN) -- Geopolitical concerns spurred Friday afternoon gains in New York Mercantile Exchange West Texas Intermediate and Intercontinental Exchange Brent futures, while product futures were mixed on the session and down on the week.

Market indicators were mixed, leading to sideways trading for the crude contracts, with the oil disposition outlook for the first quarter by the International Energy Agency bearish, differing from the Energy Information Administration's Short-term Energy Outlook released earlier in February. Geopolitical tensions fanned by another attack on commercial shipping in the Red Sea by Houthi terrorists on Thursday and a new military offensive by Israel Defense Forces in southern Gaza in Rafah prompted modest gains by Brent and WTI.

Early Thursday, IEA released its Oil Market Report that trimmed its outlook for world oil consumption in 2024 for year-on-year growth of 1.28 million bpd. The Paris-based agency also projects a balanced oil market for the first quarter despite production cuts by OPEC+, bearish against EIA's outlook for a 100,000-bpd drawdown from global oil supply in the first quarter.

Attempting to shore up support in global oil prices, the United Arab Emirates, Iraq, and Kazakhstan said they would improve compliance with production quotas agreed to Nov. 30, 2023. In addition to production cuts reached in June 2023, several countries in OPEC+ pledged additional production cuts for the first quarter. UAE pledged to cut production by 163,000 bpd, Iraq by 223,000 bpd, and Kazakhstan by 82,000 bpd. A consequence of lower production is greater spare capacity by OPEC+, including 3 million bpd held by Saudi Arabia alone.

Domestically, heavy refinery maintenance in February along with unplanned outages, namely BP's 435,000 bpd Whiting Refinery in northern Indiana, had bolstered RBOB and ULSD futures during the first half of February while weighing on crude. Weekly EIA data showed the U.S. refinery utilization rate fell 12% from the second week of January to 80.6% during the week-ended Feb. 9, a nearly 10-month low. Harsh winter weather conditions in mid-January affecting units in PADD 3 prompted some operators to advance previously scheduled maintenance, while the unplanned refinery outage at Whiting and Phillips 66's 208,000 bpd Ponca City refinery in Oklahoma, further reduced fuel production. The PADD 2 refinery run rate fell 12% to 83.1% of capacity during the week ended Feb. 9, and PADD 3 refinery utilization averaged 79.7%, up 2.6% from a 29-month low.

Pricing support for the products contracts dissipated amid weak demand. Gasoline supplied to the U.S. market plunged 639,000 bpd to 8.168 million bpd during the week ended Feb. 9, while demand during the most recent four-week period averaged 8.25 million bpd, down 84,000 bpd or 1% against the comparable year-ago period. Distillate fuel supplied to the U.S. market declined 303,000 bpd to a 3.514 million bpd five-week low in the week ended Feb. 9, while cumulatively in 2024 is down 171,000 bpd or 4.4%, averaging 3.675 million bpd.

Macroeconomic data also offered mixed signals, with inflation running hotter than expected in January at both the consumer and wholesale level while retail sales fell sharply, down 0.8% last month against expectations for a 0.1% downtick. The data whipsawed the U.S. dollar on expectations surrounding rate cuts by the Federal Reserve. On Friday, most investors expect the Federal Open Market Committee to make a 25-point cut in the federal funds rate at their June meeting, pushing back expectations for an earlier cut in the overnight bank borrowing rate.

The U.S. dollar, which reached a 104.875 three-month high on Wednesday, ended the week at 104.182 in index trading against a basket of foreign currencies, softening on the session while 0.2% stronger than prior Friday.

NYMEX March WTI futures, which expire Tuesday (2/20), settled $1.16 higher at $79.19 bbl, with the April contract ending the session with a $0.87 gain at $78.46 bbl. March WTI futures rallied $2.35 or 3.1% this week, with the backwardation in the prompt spread widening $0.66 this week to $0.73 backwardation.

ICE April Brent futures settled $0.61 higher at $83.47 bbl, while up $1.28 or 1.6%.

NYMEX March RBOB futures gained $0.0177 with a $2.3360 gallon settlement, while easing fractionally from the prior Friday. NYMEX March ULSD futures settled down $0.0171 at $2.8066 gallon and lost $0.1576 or 5.3% in value on the week.

Brian L. Milne can be reached at brian.milne@dtn.com.