DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the first day of February mixed. Both U.S. and international crude benchmarks posted little change on the session as market participants turned cautious ahead of the upcoming meeting among OPEC+ ministers when the alliance could announce a larger-than-expected production increase for March to cool off rallying prices that are seen undermining growth in global oil demand.

Limiting losses for the oil complex are weather forecasts of yet another major winter storm, Landon, approaching states in the southern U.S. with heavy snow and subfreezing temperatures seen spreading as far south as Texas before snow and ice come to the Midwest. DTN Weather expects a much colder airmass will be building behind a cold front across the Central U.S. in the next two to five days, with coldest anomalies targeting Southern Plains by days three through five. Dallas area could see temperatures drop to as low as 10 degrees Fahrenheit. Winter storm watches are now covering a wide swath of the United States, from El Paso, Texas, through the Midwest to parts of the Northeast, including Burlington, Vermont.

The forecast comes nearly a year after a catastrophic Winter Storm Uri devastated the Texas oil infrastructure and power grid, shuttering gas pipelines and power lines, and disrupting operations at oil, gas, and petrochemical production facilities. Swaths of Texas' pipeline capacity runs overground, and equipment is largely unwinterized to withstand subfreezing temperatures. At its peak, Winter Storm Uri disrupted as much as 1.3 million barrels per day (bpd) in Texas daily oil output.

The risk of supply disruption in the United States comes as nationwide crude stockpiles are shrinking at an accelerated pace and the Organization of the Petroleum Exporting Countries and allies led by Russia are struggling to raise production in line with agreed quotas. U.S. total crude and oil products stocks currently stand about 7% below the five-year average at 1.78 billion barrels (bbl).

Analysts expect commercial crude oil inventories would show a 1.1 million bbl build for the week ended Jan. 28, while the estimates range from a draw of 2.2 million bbl to an increase of 2.9 million bbl. Gasoline stockpiles are expected to have gained 1.7 million bbl from the previous week, while stocks of distillates are seen decreasing by 1.6 million bbl. Refinery use likely fell by 0.1% from the previous week to 87.6% of capacity.

Globally, OPEC+ is set to meet Wednesday to discuss output levels for March amid a widely accepted consensus that the group will stick with its strategy agreed to in July last year of a monthly 400,000 bpd increase in production. Goldman Sachs, however, suggested on Monday (1/31) that the surge in oil prices might have gone too far too early and could prompt OPEC+ to announce a bigger-than-expected rise in output.

"We view growing potential for a faster ramp-up at this meeting, given the pace of the recent rally and the likely pressure from importing nations," Goldman analysts said. "The producers' group may also be growing more concerned by the hawkish central bank shift that could lead to slower global growth and oil revenues later this year."

The concern is with a few OPEC+ members, namely Nigeria, Angola, and Kazakhstan, that have consistently missed their quotas. In December, OPEC+ added just 253,000 bpd to its combined production compared with an agreed-to quota for a 400,000 bpd increase, according to data from the International Energy Agency. A document from OPEC+ technical panel seen by Reuters indicates total production by OPEC+ countries was 824,000 bpd lower than the required production in December 2021, with overall compliance for the group climbing to 122%.

Arguably, there are only two members within the group that can pump more today than they could back in March 2020 -- Saudi Arabi and the United Arab Emirates. IEA estimates OPEC's spare capacity could fall by half to just 2.6 million bpd in the second half of the year.

On the session, front-month West Texas Intermediate futures settled little changed at $88.20 bbl, with Brent crude for April delivery slipping $0.10 to $89.16 bbl. NYMEX March RBOB futures rallied 2.08 cents to $2.5752 gallon and March ULSD futures surged 2.55 cents to $2.7412 gallon.

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