DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange eased early morning Wednesday, with front-month West Texas Intermediate futures trading near $34 per barrel (bbl) as investors eye weekly U.S. inventory data for fresh signs the domestic market continues to tighten as more states lift lockdown measures and boost demand for transportation fuel.

This week's inventory reports from American Petroleum Institute and Energy Information Administration are delayed one day due to Monday's Memorial Day holiday, with API to release supply estimates at 4:30 p.m. ET followed by official data from EIA at 11:00 a.m. ET Thursday.

In early trading, WTI July futures slipped $0.42 to $33.94 bbl, reversing down from Tuesday's $34.81 12-week spot high, and the International crude benchmark Brent July contract dropped back $0.55 to $35.65 bbl, narrowing its discount to next-month delivery August contract to $0.55 bbl ahead of expiration on Friday. NYMEX June ULSD futures were 0.63 cents lower at $0.9845 gallon, reversing down from Tuesday's $1.0340 seven-week high, with the next-month delivery July contract trading at 3.64 cents premium to the expiring contract in the contango market. NYMEX June RBOB futures were down 2.26 cents to $1.0263 gallon with next-month delivery trading at a premium of 1.45 cents.

The market's narrative continues to be driven by signs of faster-than-expected rebalancing as producers dramatically reduce production, with the most recent forecasts calling for demand to outpace output as soon as the fourth quarter.

Morgan Stanley now expects oil market to be undersupplied by 4 to 6 million barrels per day (bpd) during the fourth quarter and first quarter 2021, while demand is expected to reach about 97 million bpd during the fourth quarter, still about 4 million bpd less than pre-crisis levels.

"Now that the rebalancing has been set in motion, we expect it to continue. Our base case forecasts call for a further tightening of the oil market over the next few quarters," said the investment bank.

Energy consultancy Rystad estimates the market was about 16 million bpd oversupplied in April but by June eyes a partial recovery in global oil demand and supply cuts of 12 million bpd that will move the market closer to equilibrium, although at lower levels compared to pre-pandemic.

In financial markets, stocks on Wall Street continued higher in pre-market trade Wednesday amid reports of progress towards a vaccine and reopening of major economies. Futures tied to Dow Jones Industrials indicate a 300-point advance after spiking over 700 points session prior and S&P 500 breaking above 3,000 for the first time since early March.

Wire services indicate there are now 10 coronavirus vaccines in clinical trials and over a hundred in pre-clinical evaluation, with biotech companies like Moderna and Novatex having begun phase-two testing involving large human samples.

By the end of May, roughly 90% of 4.1 billion people worldwide that went into lockdown a month earlier will see some sort of reopening, boosting sentiment across the markets.

Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, www.dtn.com

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