DTN Oil

WASHINGTON, D.C. (DTN) -- Erasing midmorning losses, West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange settled Monday's session more than 1% higher, boosted by market expectations for the Organization of the Petroleum Exporting Countries (OPEC) and allied producers to extend 2.2 million barrels per day (bpd) in output cuts through the second quarter in an attempt to balance the physical oil market against surging production outside the 22-member coalition.

A consensus of analysts and traders surveyed by Bloomberg showed OPEC+ will likely continue with the voluntary production cuts, announced on Nov. 30, 2023, through the end of June. Saudi Arabia and Russia shoulder the lion's share of those cuts, while Iraq, United Arab Emirates, Kuwait, Algeria, Kazakhstan and Oman pledged an additional 696,000 bpd in curbs. The current agreement expires at the end of March.

While global oil demand is still lagging production growth, markets are skeptical OPEC+ will risk unwinding the current curbs that would likely send oil prices sharply lower.

Goldman Sachs forecasts the Saudi-led coalition will only partially begin phasing out the latest cuts package sometime in the third quarter. Others think the unwinding will not take place until mid-2025. For now, the physical oil market shows signs of tightening with prompt-month Brent April contract currently trading with a $0.49 per barrel (bbl) premium against the next-month contract, with the backwardated market structure reflecting a tight supply disposition into the second quarter.

Limiting the bullish punch from OPEC+ cuts, production growth outside the 22-member coalition shows no signs of easing. In the United States, operators sustained a record-high 13.3 million bpd production rate for the third consecutive week through Feb. 16, according to the latest data from the U.S. Energy Information Administration. Baker Hughes reported on Feb. 23, the number of active oil rigs in the U.S. reached a 503 11-week high. The International Energy Agency expects strong production growth from non-OPEC+ producers, particularly the U.S. and Canada, would lead to substantial market surpluses in the second half of 2024.

At settlement, NYMEX WTI for April delivery advanced $1.09 bbl to $77.58 bbl, while front-month Brent futures added $0.91 to $82.53 bbl. NYMEX March RBOB futures gained $0.0289 to finish at $2.3056 gallon, while NYMEX March ULSD futures moved $0.0730 higher to $2.7627 gallon.

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