Oil Futures Lower on Uneven Recovery

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange fell for a third straight session Tuesday, with the international crude benchmark retreating more than 1%. The losses came amid growing uncertainty over what OPEC+ will decide on production quotas for April as global oil demand shows signs of a widening regional gap, with Eurozone's economy falling far behind the United States, where effective vaccine rollout and massive stimulus measures turbocharged the recovery.

Tuesday's lower settlements are realized as traders readjust positions ahead of Thursday's OPEC+ meeting, with consensus still calling for the alliance to raise production by 500,000 barrels per day (bpd) and Saudi Arabia to sunset its additional 1 million bpd. There are growing jitters, however, over whether global oil demand is strong enough to absorb a sudden 1.5 million-bpd production increase as some major economies are seen extending quarantine measures well into spring.

Europe's stubbornly high infection rate and painfully slow vaccine rollout prompted German officials on Tuesday to extend the nationwide lockdown until the end of March -- yet another blow for Eurozone's largest economy. Fresh data released overnight highlighted the growing economic gap between the Eurozone and the U.S. economies, with German retail sales falling 4.5% in January compared with 5.3% jump for U.S. sales.

That being said, the U.S. recovery narrative still holds its grip over the market.

The Fed's Atlanta GDPNow model boosted first-quarter growth projections to 10% on Monday, up from 8.8% on Feb. 26. After this month's Institute of Supply Management's Manufacturing Index, the nowcast estimates first-quarter personal consumption growth jumped to 17.7%, up from 7.7% previously, and domestic investment growth was pegged at 18.7%, up from 8.8% just a week ago.

U.S. manufacturers reported one of the most widespread improvements in business conditions for 30 years last month, with composite purchasing managers' index rising to the highest level since February 2018. The growing divergence between the world's major economies will most certainty complicate the balancing act for the OPEC+ ministers on Thursday as correctly identifying the trajectory of the global demand recovery remains elusive.

On Tuesday, oil traders also positioned ahead of weekly inventory data from the American Petroleum Institute and U.S. Energy Information Administration. U.S. crude oil stocks are seen falling slightly from the previous week, and refined products stocks are expected to drop sharply. Analyst estimates project U.S. crude inventories to have fallen by 700,000 barrels (bbl) in the week ended Feb. 26. Gasoline stockpiles are expected to have been drawn down 1.9 million bbl from the previous week, and stocks of distillates are expected to have declined by 3 million bbl from the previous week. Refinery use likely rose by 5% to 73.6% utilization as plants began to reopen following an unprecedented major winter storm that forced refinery shutdowns in Texas and the lower Midwest.

In the market-on-close trade, NYMEX West Texas Intermediate April crude fell below $60 per bbl, down 89 cents to a $59.75-per-bbl settlement, and Brent crude futures for May delivery declined 99 cents to $62.70 per bbl. NYMEX April ULSD contract dropped back 1.11 cents to settle at $1.8081 gallon, and front-month RBOB eased 0.65 cent for a $1.9364-per-gallon settlement.

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

Liubov Georges