WTI, Brent Futures Add to Gains

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange continued higher early Tuesday after the technical committee for the Organization of the Petroleum Exporting Countries signaled tighter supply-demand fundamentals for the first quarter as unplanned supply disruptions in a number of smaller oil producers, including Libya and Ecuador, offset a tsunami of Omicron infections in major oil-consuming countries.

Multiple sources have indicated OPEC+ ministers are set to agree today on a 400,000-barrel-per-day (bpd) production increase for February -- in line with their roadmap drafted in July last year to restore output they shut-in in response to the global pandemic.

The agreement envisaged monthly increases of 400,000 bpd through April, and then at 432,000 bpd every month until all of the 9.7 million bpd they cut two years ago is returned. The increases must be approved each month and can be paused or deepened should market conditions warrant an adjustment.

This month, the consensus is calling for the group to go forward with their agreement despite record-breaking numbers of Omicron infections in oil-consuming behemoths, like the United States and European Union. The Omicron tsunami have triggered severe disruptions to global air travel that is impacting jet fuel demand, with over 14,000 flights have been grounded recently in the United States alone. On Monday, the U.S. shattered its previous record of daily infections with 440,000 new COVID-19 cases.

OPEC+ technical committee, however, expects those disruptions to be transient as governments around the world have learned how to cushion the blow from the pandemic and consumer spending remained solid at the end of 2021. This has been joined with underproduction by a number of African oil producers that have struggled to raise their output in line with agreed quotas and unplanned supply disruptions in countries like Libya and Ecuador. Libya, in particular, has recently seen its oil production drop sharply, with over 300,000 bpd from the country's largest oil field at Sharara shut-in by an insurgency and another 200,000-bpd shut-in over the weekend due to a leaking pipeline that carries crude to the nation's crude oil terminal El Sider. Combined, these closures have reduced Libyan oil production to about 700,000 bpd -- the lowest in more than a year.

In Ecuador, soil erosion caused by deforestation in the Amazon have closed the nation's two major oil pipelines that carry crude oil across the Andes. On Monday, the government claimed to have partially resumed operations on the 360,000 bpd SOTE crude pipeline and 450,000 bpd OCP pipeline with the goal to resume oil production to its pre-crisis level next month.

In Africa, Nigeria and Angola have consistently underproduced their OPEC quotas, seemingly unable to raise production further, with operations plagued by years of underinvestment and political turmoil. This underproduction could become increasingly problematic going forward, and lead to sharply higher oil prices later this year or in 2023, especially if Omicron's dent to global oil demand remains limited to jet fuel as the most recent estimates and analyses show occurred at the end of 2021.

The internal document released by the OPEC+ technical committee already showed a much smaller surpluses at the beginning of 2022 compared with the previous projections. The committee pegged the first-quarter surplus at 1.4 million bpd, down markedly from a 3.1 million bpd oversupply seen last month when data on Omicron was still limited. In 2022, the committee put the surplus at 1.4 million bpd, down from its previous forecast of 1.7 million bpd.

Near 7:30 a.m. ET, West Texas Intermediate February futures gained $0.25 to $76.33 per barrel, and March Brent added $0.26 to trade near $79.23 per barrel. NYMEX February RBOB futures surged 1.48 cents to near $2.2713 gallon, with the front-month ULSD contract trading near $2.3760 gallon, 1.87 cents higher on the session.

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

Liubov Georges