DTN Oil

WASHINGTON (DTN) -- Crude and refined products futures on the New York Mercantile Exchange and the Intercontinental Exchange accelerated their February rally in afternoon trade Wednesday. The prompt-month gasoline contract reached the highest price point since Aug. 1, 2019, after stronger-than-expected retail and industrial data for the United States indicated the economy's ongoing recovery continued in January. The closures of refineries and oil fields along the energy prolific Gulf Coast region continued to fuel buying interest.

On the session, West Texas Intermediate futures for March delivery added more than $1 to settle at $61.14 barrel (bbl) and the international crude benchmark Brent April contract advanced 99 cents to $64.34 bbl. Both crude benchmarks added over 14% in value since the beginning of February. NYMEX March ULSD futures surged 2.33 cents to $1.8377 gallon and March RBOB futures gained 3.91 cents to finish at $1.8105 gallon.

Oil's gains came even after the U.S. Dollar Index began trending higher to finish above the 90.90 level at 90.949 after government data showed a strong rebound in retail sales last month and ongoing improvement in the country's manufacturing sector. Boosted by $600 stimulus checks, U.S. retail sales spiked 5.3% in January after three consecutive months of declines during the 2020 holiday shopping season.

U.S. industrial production, meanwhile, improved 0.9% in the reviewed month to nearly reach its pre-pandemic output rate. The Federal Reserve Bank of Atlanta's GDPNow model on Wednesday projects the economy will grow at a 9.5% seasonally adjusted annual rate in the first quarter, up sharply from a 4.5% estimate a week ago.

Oil futures quickly clawed back midmorning losses fueled by a Wall Street Journal report that indicated Saudi Arabia plans to end its unilateral crude production cut of 1 million barrels per day (bpd) on March 31, while Organization of the Petroleum Exporting Countries are likely to maintain the current production agreement limiting output by 7.125 million bpd this month and 7.05 million bpd during March.

"We are in a much better place than we were a year ago, but I must warn, once again, against complacency," Prince Abdulaziz bin Salman, the Saudi energy minister, said at a conference Wednesday. "The uncertainty is very high, and we have to be extremely cautious."

While the report citing Saudi's top energy official is clearly intended to remind the market that the OPEC+ coalition stands to raise production in coming months to meet rising demand, it didn't stop oil prices from rallying to fresh highs on Wednesday.

In essence, OPEC+ still stands to withhold over 8 million bpd from the global oil market through the end of March at a time when U.S. shale fields have been curtailed by as much as 3.5 million bpd due to adverse weather conditions this week leading to the potential for a global supply shortfall that, according to the most conservative estimates, amounts to at least 10 million bpd in lower output.

It remains unclear how quickly U.S. shale producers will be able to restore output lost to extreme weather conditions in the south-central U.S. DTN Weather forecasts subzero temperatures will persist in Texas through Friday. Wells in the prolific Permian Basin produce a lot of water, so production streams can easily freeze at the surface under subzero temperatures. Additionally, power outages across Texas have left oil pumps and auxiliary facilities without electricity for days, while icy roads undermine supply chains and limit accessibility to repair equipment.

This week's inventory reports won't reflect those conditions, as data from both the American Petroleum Institute and U.S. Energy Information Administration will only show inventory changes for the week ended Feb. 12. According to analysts, U.S. crude oil stockpiles are expected to have declined by 2 million bbl last week, while gasoline inventories likely rose 1.2 million bbl from the previous week. Stocks of distillates are projected to have fallen by 1.6 million bbl from the previous week. Refinery use likely declined by 0.2% to 82.8% of capacity.

The closely watched survey from Energy Information Administration is scheduled for release at 11 a.m. EST Thursday, a day later than usual due to Monday's Presidents Day holiday.

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