Oil Rallies on OPEC+ Missed Quotas, Expected Crude Draw

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 rallied Tuesday, lifting the international crude benchmark above $83 barrel (bbl) following private surveys suggesting a number of OPEC+ producers missed their quotas last month, underdelivering on a pledged agreement to boost crude supplies, while an expected drawdown from U.S. commercial oil inventories last week fueled additional buying interest.

On the session, front-month West Texas Intermediate futures rallied $2.99 to $81.22 bbl -- the highest settlement since the omicron wave of coronavirus first surged across the United States in late November 2021, while ICE Brent crude for March delivery advanced to $83.72 bbl, up $2.85 on the session. NYMEX February RBOB futures spiked more than 8 cents for a $2.3574 gallon settlement, and the front-month ULSD contract gained 7.6 cents to $2.5636 gallon.

On Tuesday afternoon, oil traders positioned ahead of U.S. inventory data from the American Petroleum Institute on tap for a 4:30 p.m. EST release, followed by the official government report Wednesday morning. Commercial crude oil inventories likely fell by 2.1 million bbl for the week ended Jan. 7, with estimates ranging from declines of 800,000 bbl to 3 million bbl. Gasoline stockpiles are expected to have risen 2.3 million bbl, while distillate fuel supplies are seen to have gained 1.2 million bbl.

Analysts expect refinery run rates to have slipped by 0.1% from the previous week to 89.7% of capacity during the first week of 2022. DTN Refined Fuels Demand data showed gasoline lifted at terminals across the United States increased just 0.7% from the previous week last week, bringing the seven-day moving average to just 4% above the January 2021 level. That marked a sharp decline from 15% above the year-ago level in late December.

Weak demand data comes amid record number of COVID-19 hospitalization in the United States that are pushing several states toward emergency staffing as they struggle to cope. More than 145,900 people were in U.S. hospitals with COVID-19 as of Tuesday -- a number that surpasses the previous peak from mid-January 2021 and is almost twice what it was two weeks ago, according to data from the Department of Health and Human Services.

Despite the headwinds of the pandemic, oil futures were boosted on Tuesday by reports suggesting some of OPEC+'s largest producers, including Russia and Nigeria, missed their output targets in December. S&P Platts reported that 14 out of the 18 members fell short of their production quotas. OPEC pumped 28.04 million barrels per day (bpd) of crude last month, up 190,000 bpd from November, while nine non-OPEC partners output averaged 13.98 million bpd, an increase of 120,000 bpd, the survey found.

Separately, Libya's National Oil Company said on Tuesday it suspended crude loading from its eastern Es Sider terminal despite lifting a force majeure on two terminals in the west following an agreement with the Petroleum Facilities Guard.

After nearly touching 1 million bpd on Monday, combined Libyan output fell back to 896,000 bpd amid the terminal shutdown, according to NOC statement.

"The oil ports are witnessing a state of bad weather. It is impossible to connect the landing tankers to the port," the NOC said.

In outside markets, investors are awaiting the release of U.S. inflation data for December that is expected to show an increase of 7.2% -- the highest in 40 years if realized. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said on Monday he sees three interest rates hikes in the United States this year, with the potential for the fourth towards the end of 2022 should inflation pressures remain high. Inflation in countries that are part of the Organization for Economic Cooperation and Development surged to a 26-year high 5.8% in November, according to OECD figures released Tuesday morning. Excluding food and energy, consumer prices were up 3.8%, contributing significantly to headline inflation in a number of economies. There were, however, large variations among the countries that are part of the economic bloc, with prices rising 6.8% in the United States, but only 0.6% in Japan.

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

Liubov Georges