Choppy Oil Futures Trade Ahead of Expirations, Inventory Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were shallowly mixed in early trade Wednesday after the technical panel for OPEC+ lowered 2021 global demand projections ahead of Thursday's meeting with country officials when producers will decide on whether to extend production quotas for another month. Mixed morning price action also followed inventory data from the American Petroleum Institute late Tuesday that showed U.S. crude and distillate stockpiles once again increased above consensus during the week ended March 26.

Near 7:30 a.m. EDT, West Texas Intermediate futures for May delivery slipped 10 cents to $60.48 barrel (bbl) and the Brent May contract on ICE declined 21 cents to trade just below $64 bbl ahead of Wednesday afternoon's expiration. The June contact expanded its premium to May Brent to 16 cents overnight, trading near $64.05 bbl. NYMEX April ULSD futures pared overnight losses to trade little changed near $1.7950 gallon and May futures expanded its premium to 0.5 cents against the expiring contract. NYMEX RBOB April futures was up slightly after posting solid gains overnight, trading near $1.9872 gallon this morning, and next-month delivery May contact trading higher near $2.0050 gallon.

U.S. commercial crude oil inventories spiked 3.901 million bbl last week, according to API data, far exceeding market calls for a 600,000 bbl build. If confirmed by the Energy Information Administration, the increase would be the sixth consecutive build in domestic supplies that would push inventories to about 7% above the five-year average. Distillate inventories also climbed above expectations with a 2.595 million bbl build after surging 3.8 million bbl in the week prior. The exception in the otherwise bearish report was gasoline, with stockpiles posting a surprise 6.012 million bbl draw versus calls for a 1 million bbl build.

DTN demand data showed gasoline use increased 6.1% during the final full week of March from the previous week to nearly match pre-pandemic levels.

Mobility figures offer further evidence for stronger demand, showing traffic activity surging 26% in the final two weeks of March as states and local governments further ease quarantine restrictions. In recent weeks, a growing number of states have expanded access to the COVID-19 vaccine, with large gasoline consuming states of California and Florida opening eligibility to 50 and older on April 1.

On Tuesday, OPEC+'s Joint Ministerial Monitoring Committee lowered global demand projections that reduced annualized growth in 2021 to 5.6 million barrels per day (bpd), down 300,000 bpd from the previous forecast, citing a third wave of infections in the European Union, and the spread of new variants in India and Brazil that are joined by a lack of vaccine access in much of the developing world.

JMMC also said, "Despite the ongoing destocking of commercial OECD stocks, they remain above the 2015-2019 average, while recognizing that prevailing volatility in the market structure is a signal of fragile market conditions."

Given the pessimistic outlook, it seems likely OPEC+ will keep the ongoing production quotas of 7.05 million bpd in place for at least another month.

Report this week indicate Saudi Arabia is pushing the alliance to extend cuts for two more months until the end of June to bolster the prices into the summer. The kingdom could also again surprise the market and extend its unilateral 1 million bpd production cut for two more months. The 1 million bpd Saudi production cut comes atop of the OPEC+ quota.

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

Liubov Georges