Oil Down 2% on Easing Geopolitical Risk Ahead of Stock Data

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 posted across-the-board losses Tuesday. Both U.S. and international crude benchmarks settled the session 2% lower amid a one-two punch of easing geopolitical tensions across the Ukraine-Russian border and reported progress in Iranian nuclear talks in Vienna, where diplomats signaled the deal could be imminent after negotiations entered their final stage this week.

Further weighing on the oil complex, U.S. commercial crude oil inventories are expected to have increased 500,000 barrels (bbl) in the week ended Feb. 4, with estimates ranging from a decrease of 2.2 million bbl to an increase of 3.5 million bbl. If realized, this would mark the second consecutive weekly build for nationwide crude oil inventories following a largely sustained destocking pattern since late November 2021.

Gasoline stockpiles likely built by 1.4 million bbl from the previous week, while distillate supplies are expected to have decreased by 2.1 million bbl. DTN Refined Fuels Demand data shows gasoline demand in the United States decreased 3% in the reviewed week and diesel demand declined 7.2%. Widespread winter storms across the United States likely weighed on fuel consumption but demand also softened in regions spared from inclement weather which might signal inflationary headwinds from higher oil prices.

Traders now await the weekly inventory report from the American Petroleum Institute on tap for a 4:30 p.m. EST release, followed by official statistics from the U.S. Energy Information Admiration Wednesday morning.

In its Short-term Energy Outlook released Tuesday afternoon, EIA estimated oil inventories in countries that are part of the Organization for Economic Cooperation and Development again fell in January and now stand at their lowest level since mid-2014. The agency expects global inventories will continue to draw in February, with an average Brent spot price of $90 bbl. However, the recent destocking pattern will reverse around March, April, and continue throughout the forecast period said EIA, which would likely result in lower crude oil prices. EIA doesn't forecast OECD commercial inventories to return to their five-year average until mid-2023.

The oil complex came under selling pressure Tuesday following media reports of an apparent breakthrough in Russian-Ukrainian disagreements over the border dispute and Ukraine's bid to become a member of the North Atlantic Treaty Organization. French President Emmanuel Macron told journalists he was able to receive assurances from Russian President Vladimir Putin that the situation in Ukraine would not deteriorate any further, adding, "There is no security for the Europeans if there is no security for Russia."

Moscow has demanded NATO forces be withdrawn from Eastern Europe and Ukraine, Russia's immediate neighbor on its western border, and that Ukraine never be granted membership in the alliance. United States and NATO rebuked the demands, citing NATO's policy of "open doors" and principle of "self-determination."

Separately, oil traders are watching for signs of progress in Iranian nuclear talks that have appeared to reach their final stage this week after U.S. President Joe Biden renewed waivers for Iranian nuclear projects designated for civilian use. Representatives from Moscow and Tehran have suggested the new deal could be imminent now that the Biden administration is ready to negotiate.

On the session, March West Texas Intermediate futures fell $1.96 to $89.36 bbl, and Brent crude for April delivery declined $1.91 for a $90.78 bbl settlement. NYMEX March RBOB futures plummeted more than 6 cents to $2.6251 gallon and the front-month ULSD contract slumped 6.28 cents to $2.7926 gallon.

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

Liubov Georges