DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled lower for the third consecutive session Tuesday, with West Texas Intermediate retreating below $65 barrel (bbl) amid concern the suspension of the AstraZeneca vaccine in the European Union would delay the recovery in global oil demand. In addition, last month's rare weather event continues to disrupt operations at U.S. Gulf Coast refineries, reducing crude throughputs in a region that includes the country's largest concentration of oil refineries.

U.S. commercial crude oil inventories have increased for each consecutive week since Feb. 19 after Winter Storm Uri on Feb. 15 forced the shutdown of more than half of the nation's refining capacity. With refineries unable to process crude, domestic crude oil inventories added a whopping 36.646 million bbl in less than a month. At 498.403 million bbl, inventories on hand jumped 5% above the five-year average in early March and traders expect the building pattern to continue into mid-month.

Analysts expect crude supplies to have climbed another 1.4 million bbl in the week ended March 12, although estimates ranged significantly from a decrease of 4 million bbl to an increase of 6.5 million bbl. Gasoline supplies are projected to have eroded further during the reviewed week, down 2.5 million bbl, and distillate stocks seen to have fallen by 1.6 million bbl from the previous week. Refinery use likely rose by 5.1% to 74.1% of capacity.

The chilling effect of Winter Storm Uri also transpired through February's economic data released Tuesday morning, showing retail sales unexpectedly declined 3% from the previous month and industrial production plunged 2.2% as the storm appeared to have disrupted regional supply chains.

"The severe winter weather in the south-central region of the country in mid-February accounted for the bulk of the declines in output for the month. Most notably, some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month," said the Federal Reserve.

A rebound is likely, however, as the federal government is now disbursing another round of stimulus checks this month while households are estimated to have accumulated over $1.8 trillion in excess savings.

Internationally, there are growing concerns the recent spike in COVID-19 infections in Europe will lead to slower-than-expected recovery in global oil demand, at least in the second quarter. The European Union is now facing the third wave of contagion, fueled by more contagious variants of coronavirus and painful delays in vaccination efforts. With more EU countries suspending the use of AstraZeneca vaccine, the world's largest economy is unlikely to pick up the vaccination pace anytime soon.

Markets will now be watching for the International Energy Agency's oil monthly report due out Wednesday, for any signals that recovery in oil demand in countries that are part of the Organization for Economic Cooperation and Development is now slowing.

Organization of the Petroleum Exporting Countries reduced its second quarter global oil demand forecast by 310,000 barrels per day (bpd) from February's estimates to 95.61 million bpd, which compares with demand in the second quarter 2020 at 83.07 million bpd when the pandemic shut down most of the world's economy.

On the session, West Texas Intermediate for April delivery declined 59 cents to $64.80 bbl and Brent May crude on ICE dropped back 49 cents for a $68.39 bbl settlement. NYMEX April ULSD futures declined 1.62 cents to $1.9327 gallon and April RBOB futures settled little changed at $2.1012 gallon.

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