Oil Futures Drop Back as Demand Recovery to Take More Time

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange fell for the second session early Friday as some investors took profits following the sharp rally in February through Wednesday after major forecasting agencies again revised the global demand outlook for the first half of the year lower under pressure from resurging infections and slow vaccine rollout campaigns in the European Union and parts of Asia.

In early trade, West Texas Intermediate for March delivery futures slipped below $58 per barrel (bbl) to trade near $57.60 bbl, while international crude Brent April contract fell 48 cents to $60.65 bbl. Both benchmarks traded at their highest points on spot continuous charts in 13 months this week.

NYMEX March ULSD futures dropped 1.65 cents to near $1.7281 gallon after trading at a one-year high $1.7677 gallon and March RBOB futures retreated 1.37 cents to $1.6365 gallon.

Further weighing on the complex, U.S. Dollar Index now at 90.6 gained upside traction for a second session early Friday, which advanced despite last week's jobless claims reported Thursday that were worse than expected, and Federal Reserve Chairman Jerome Powell cautioned that the labor market is a "long way" from recovery.

Preliminary data on consumer sentiment for February to be published by the University of Michigan at 10 a.m. ET is expected to show a modest improvement to an 80.9 reading, up from 79.0 in the previous month. The overall stability in consumer sentiment has been largely attributed to optimism around vaccination programs and generous federal benefits that are feeding into expectations for a stronger recovery in the second half of the year.

This was echoed in the latest forecast from the Organization of the Petroleum Exporting Countries and International Energy Agency that project global oil demand would accelerate in the second half of the year as the market continues to rebalance. The IEA expects global oil demand will grow by 5.4 million barrels per day (bpd) in 2021 to reach 96.4 million bpd, noting this would be around 60% of the volume lost to the pandemic in 2020. This is the fourth straight month the IEA has lowered its demand outlook, frustrated by the challenges the world is having in curbing COVID-19 infections, as it shifted its optimism to the second half of the year.

"A more positive global economic outlook and the start of large-scale vaccination campaigns in much of the developed world will reinforce stronger oil demand growth in the second half of the year," the agency said, citing the International Monetary Fund's improved outlook for the global economy.

The agency significantly increased its forecast for producing nations outside OPEC+, raising its projection for non-OPEC supply growth by 290,000 bpd for an increase of 830,000 bpd this year. Despite increasing its production estimates, the IEA said that a recovery in demand would outstrip production in the second half of the year, prompting "a rapid stock draw" of the glut of crude that has built up since the pandemic began.

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

Liubov Georges