WASHINGTON (DTN) -- Erasing modest losses from earlier in the session, crude futures nearest delivery on the New York Mercantile Exchange and the Intercontinental Exchange advanced in market-on-close trade Tuesday, supported by a weakening U.S. dollar and expectations for tightening global supplies after the Energy Information Administration lowered its outlook for U.S. crude oil production for the rest of 2021, while forecasting a marginal production increase from the Organization of the Petroleum Exporting Countries and partners outside the cartel.
The U.S. Dollar Index eroded to a one-week low 90.415 in midafternoon trade Tuesday, down 0.55% against a basket of global currencies, making greenback-traded commodities like crude more attractive to holders of other currencies. U.S. currency suffered heavy losses following the release of a mostly disappointing employment report on Friday. The next key reading on the U.S. labor market comes Thursday when the Bureau of Labor Statistics releases its update on weekly unemployment claims. After declining for three weeks out of four in January, initial jobless applications are expected to have jumped back to 800,000 during the first week of February. This could potentially depress the U.S. dollar further heading into the end of the week, while boosting the oil complex.
Separately, oil traders also positioned Tuesday ahead of the weekly inventory data due out 4:30 p.m. EST from the American Petroleum Institute and EIA's data on tap for 10:30 a.m. EST Wednesday.
U.S. crude oil stockpiles are expected to show a 100,000-barrel (bbl) increase in the week ended Feb. 5, although estimates range from a decrease of 4 million bbl to an increase of 3.4 million bbl. Gasoline stockpiles are expected to rise by 1.4 million bbl from the previous week and distillates inventories are likely to have fallen by 1.1 million bbl from the previous week. Refinery use likely declined by 0.3% to 82% of capacity.
On the session, March West Texas Intermediate futures added 39 cents to settle at $58.36 bbl and the international crude benchmark Brent contract for April delivery jumped above $61 bbl for a $61.09 settlement. Both contracts surged nearly 2% on Monday. NYMEX March ULSD futures gained 0.89 cent to a one-year high spot settlement of $1.7567 gallon, and March RBOB futures settled little changed at $1.6736 gallon.
Oil futures extended higher for the seventh consecutive session Tuesday, sending both WTI and Brent contracts to the highest settlement since late December 2020. Familiar bullish factors on the vaccine front, demand outlook and tightening global oil supplies continue to support the oil complex. Additionally, EIA downgraded Tuesday afternoon its forecast for U.S. oil production by 100,000 barrels per day (bpd) this year to 11 million bpd. The agency sees domestic output eroding further in coming months to 10.9 million bpd before gradually rise to 11.5 million bpd in 2022.
"Although oil-directed drilling has increased in the United States in recent months, the number of active drilling rigs remains lower than year-ago levels. EIA expects production from newly drilled wells will be more than offset by declining production rates at existing wells in the first half of 2021," said EIA.
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