Oil Futures Up on Supply Shortfall

WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent on the Intercontinental Exchange shifted higher on Friday, with both West Texas Intermediate and Brent heading for weekly gains, as a tightening world oil supply-demand disposition drives global crude oil inventories into deficit.

In midmorning, NYMEX WTI May futures moved $0.55 higher to $64.13, trading near a five-month high, while ICE Brent June contract was up $0.62 to $71.45. NYMEX ULSD May futures shifted 0.28 cent lower to $2.0700 after settling above 200-day moving average midweek. NYMEX RBOB May futures were up 0.22 cent to $2.0331, trading near a six-month high.

Friday morning, the drumbeat of bullish supply figures from International Energy Agency fueled an oil price recovery following Thursday's profit-taking session.

The Paris-based IEA said this week commercial oil inventories held by Organization for Economic Cooperation and Development countries were drawn down a steep 21.7 million barrels (bbl) in February following three months of builds. The steep decline in the first quarter was well above the 5.1 million bbl five-year average "due to larger gasoline draws and a lower crude build." IEA sees increasingly tightening crude oil fundamentals this year, while projecting further inventory drawdowns in the second and third quarters could be the largest since 2011.

Lower crude oil inventories were driven by a more than 500,000-barrel-per-day (bpd) production decline by Organization of Petroleum Exporting Countries in March. OPEC output plunged to a four-year low in March, while the 14-member group achieved a 153% compliance rate with their production cut agreement.

Adding to the impact of production cuts, oil production in Venezuela collapsed by 270,000 bpd in March to a long-term low of 870,000 bpd, according to IEA data.

"The blackouts are additional challenge for Venezuela's oil sector, already set back by economic collapse, corruption, mismanagement and -- more-recently -- by U.S. sanctions," IEA said in its monthly report.

Steep declines in Venezuela have fueled debate on whether OPEC should continue with production cuts beyond June. Russia, a reluctant participant to an agreement signaled this week that the market might not need another extension to the OPEC+ agreement which runs through the end of June, as inventory reaches a more balanced level.

Under OPEC+ accord, Russia agreed to shoulder more than 50% of the total non-OPEC cuts, which stands at 400,000 bpd. However, it has since struggled to reach the agreed quota, due to reported opposition from domestic oil industry. According to ESAI Energy, Russian crude exports are expected to reach a multi-year high of 5.7 million bpd in April, driven by greater flow of Russian crude into Asia in a bid to expand market share. Higher export rate comes as Russian oil producing companies finally achieved full compliance with their quota of 228,000 bpd cut in March.

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