DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent traded on the Intercontinental Exchange softened in choppy trading Thursday, although both crude benchmarks registered their second consecutive monthly gain in February on speculation Organization of the Petroleum Exporting Countries and Russia-led allies would extend 2.2 million bpd in production cuts through the end of the year, further tightening the physical oil market amid strengthening demand fundamentals.

A combination of upbeat demand projections and steep production cuts from OPEC+ sent crude prices to their highest level in 3-1/2 months in February. Expectations that OPEC+ will roll over current output targets into the second quarter and could potentially extend those cuts into year's end spurred another leg of buying in the oil complex this week. The 22-member coalition first announced 2.2 million bpd in voluntary supply cuts on Nov. 30, 2023, to backstop a slide in oil prices against softer demand fundamentals over the winter months. As the physical market moves into a seasonally stronger period of oil consumption over the second and third quarters, OPEC+ production cuts will likely spur global oil stock drawdowns, according to analysts.

Wood Mackenzie on Thursday revised higher its demand projection growth this year to 1.9 million bpd, driven by stronger fuel consumption in India and China.

International crude benchmark Brent for April delivery expired little changed at $83.62 bbl, with prompt-spread with the May contract widening to $1.71 bbl, reflecting a backwardated market structure. U.S. crude benchmark WTI softened $0.28 to settle at $78.26 bbl. Both benchmarks posted better than 5% gains in February.

NYMEX March RBOB futures advanced $0.0333 to expire at $2.3043 gallon, with the next-month April RBOB futures settling the session with a $0.2767 premium. NYMEX March ULSD futures added $0.0255 for a $2.6838 gallon expiration, expanding the premium to the April contract to $0.0339 gallon.

In financial markets, the U.S. dollar index advanced 0.19% against a basket of foreign currencies, and stocks on Wall Street extended February's gains after the Personal Consumption and Expenditure Index for January, the Federal Reserve's favored inflation gauge, precisely matched market expectations. On a monthly basis, the headline PCE index increased 0.3% following a downwardly revised 0.1% gain in December. From a year earlier, PCE rose 2.4%, a step down from the 2.6% reading reported at the end of 2023. Overall, the inflation report showed prices stabilized slightly above the Fed's 2% target amid ongoing demand rotation from goods into the service side of the economy. Prices for services increased 0.6% in the month while goods fell 0.2%. Interestingly, January mixed inflation results were realized as personal income unexpectedly jumped by a much larger than expected 1% last month after a 0.3% gain reported for December. Following inflation data, investors assigned a better than 50% likelihood that the Federal Open Market Committee will reduce rates by 25 basis points in June from their current 5.25%-5.5% target range.

Other economic data releases this week included the third estimate of U.S. gross domestic product for the fourth quarter of 2023, which was revised down by 0.1% to 3.2%. While slower than the 4.9% annualized growth rate for the third quarter last year. Still, the reading shows ongoing strength in the U.S. economy that was unexpected by most analysts having expected inflation and rising interest rates would slow consumer spending and economic growth.

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