DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session with gains between 1% and 2% following the decision from the Organization of the Petroleum Exporting Countries and partners outside the cartel to increase production in measured, incremental steps next month, betting on transient impact from the omicron infections on global oil demand growth, along with continued rebound in global manufacturing sector.

OPEC+ ministers agreed Tuesday to raise collective production by 400,000 barrels per day (bpd) in February, sticking to the deal they reached in July 2021 of gradually restoring the output shut-in by the pandemic. The accord envisaged monthly increases of 400,000 bpd through April, and then 432,000 bpd every month until all of the 9.7 million bpd they cut two years ago is returned. The producer group is currently withholding around 3.4 million bpd from the global oil market, with Saudi Arabia and Russia accounting for the lion's share of those cuts.

The decision was largely expected by traders and pundits despite the record-breaking surge of COVID infections in the United States along with renewed quarantine measures in Europe and China. Domestically, more than 1 million new coronavirus infections were reported in the United States on Monday, nearly double the peak reached at the height of last winter's COVID surge.

Despite dire data coming from the United States, OPEC and other oil producers are betting omicron won't be as destructive to global oil demand as the first shock of the pandemic in April 2020. One reason, OPEC delegates said, is a forecast by their technical panel that jet fuel demand will continue to strengthen once the omicron wave burns itself out. Evidence has also emerged that omicron causes less severe disease than earlier variants in populations with significant immunity.

Ahead of the meeting, OPEC+ technical committee cut its estimates for a first quarter market surplus from 3.2 million bpd to 1.4 million bpd. The shut-in production in Libya, Ecuador, as well as undercompliance by several African producers is thought to have played a major role in OPEC's decision to go ahead with the scheduled increase.

Also Tuesday, oil traders positioned ahead of the release of weekly inventory data from the American Petroleum Institute on tap for 4:30 p.m. EST, followed by the official report from the U.S. Energy Information Administration on Wednesday. U.S. commercial crude oil inventories likely fell by 3 million barrels (bbl) during the final week of 2021, with estimates ranging from declines of 1.6 million bbl to 5 million bbl. If realized, the drawdown would press domestic crude oil inventories to about 9% below the five-year average. Commercial crude oil inventories sustained a destocking pattern since the final week of November 2021.

Stocks of distillates are expected to have increased by 400,000 bbl from the previous week. Gasoline stockpiles are expected to have risen 1.1 million bbl from the previous week, according to analysts. Estimates range from a decrease of 2.5 million bbl to an increase of 4.3 million bbl.

DTN Refined Fuels Demand data showed gasoline demand in the United States contracted sharply during the final week of the year, down 18.4% from the previous week and 9% below the 2019 level. DTN data shows diesel demand decreased 21.6% from the prior week during the week ended Dec. 31, while still up 6% relative to the same week in 2019, strengthening on a relative seasonal basis after being up 0.3% compared to 2019 levels in the prior week. Through the January-November 2021 period, DTN Refined Fuels Demand data show on-road No.2 U.S. diesel demand averaging 7% above 2020 levels for the period and 2% above 2019 levels.

On the session, West Texas Intermediate February futures surged $0.91 to $76.99 bbl and March Brent added $1.02 for a $80 bbl settlement. NYMEX February RBOB futures surged 1.98 cents to $2.2763 gallon, with the front-month ULSD contract finishing at $2.4095 gallon, 5.21 cents higher from Monday's settlement.

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