WTI Falls 1.5% as Traders Eye Crude Build, US Shale Output

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Reversing earlier gains, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Tuesday's session mostly lower after the Energy Information Administration (EIA) revised higher projections for U.S. crude production for both 2021 and 2022. EIA cited an accelerated rally in oil prices and continued restraint in crude output from the Organization of the Petroleum Exporting Counties and partners outside the cartel.

Further weighing on the complex, U.S. commercial crude oil stockpiles likely increased from the previous week in data due for release at 4:30 p.m. EST from the American Petroleum Institute (API). Analysts estimate crude oil stocks rose about 700,000 barrels (bbl) after spiking 21.6 million bbl in the final week of February as refiners' capacity to process crude was downgraded by intense weather-related disruptions in the south-central U.S. last month. Refinery run rates in the United States tumbled 12.6% during the week ended Feb. 26 to a record low 56%, leading to supersized drawdowns in refined products stocks. Gasoline inventories are seen to have dropped another 3.2 million bbl from the previous week and distillate supplies are expected to have fallen by 3.4 million bbl. Refinery use likely rose by a large 6.8% from the previous week to 62.8% as refiners along Gulf Coast continued to reopen following Winter Storm Uri that forced refinery shutdowns in mid-February.

Ahead of the API data release, West Texas Intermediate for April delivery settled the session a penny above $64 bbl, down $1.04 on the session and Brent May crude retreated 72 cents to $67.52 bbl. NYMEX April ULSD futures dipped a fractional 0.12 cent to settle the session at $1.9073 gallon and front-month RBOB future settled a fractional 0.15 cent higher at $2.0502 gallon after trading at a nearly 23-month high $2.1119 gallon on Monday.

In its Short-term Energy Outlook released Tuesday afternoon, EIA forecasted domestic crude oil production would rebound to 11.1 million barrels per day (bpd) this year after collapsing to about 10.4 million bpd last month as a result of Uri that affected much of the country, in particular Texas. Following recovery efforts, U.S. shale operators are forecasted to grow production by an additional 900,000 bpd next year to 12 million bpd -- just 200,000 bpd shy of the 2019 output rate. Revised production rates reflect higher crude prices for both 2021 and 2022.

For OPEC, the agency sees crude production averaging 25.3 million bpd in April, down 1.6 million bpd from the previous month's forecast, reflecting the cartel's March 4 decision to keep production rates mostly unchanged for another month, with Saudi Arabia extending its unilateral 1 million bpd production cut by another 30 days.

Global oil demand is not expected to recover above 97.5 million bpd this year however, revised down 170,000 bpd from the previous month's forecast. This might reflect large disparities in vaccine access around the world, with developed countries like the United States and the United Kingdom seen well ahead of developing nations in their immunization campaigns.

In broader markets, stocks on Wall Street rallied and treasury yields pulled back as markets eye additional stimulus measures in the United States that are expected to boost consumers' discretionary spending in the second and third quarters. The package includes $1,400 stimulus checks to most Americans and an extension of unemployment benefits through Sept. 6, with the federal government to subsidize state unemployment insurance by $300 weekly.

House Speaker Nancy Pelosi said Monday the House of Representatives will take up the Senate passed $1.9 trillion coronavirus stimulus plan by Wednesday.

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

Liubov Georges