DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined for a second session on Tuesday, with U.S. and international crude benchmarks having lost more than 10% since the beginning of the week after Ukrainian officials signaled a ceasefire agreement with Russia could be reached as soon as next week amid signs of a stalled military campaign by the Russians, while growing fears over rising inflation, elevated commodity prices and strained supply chains soured sentiment in financial markets.

In its Monthly Oil Market Report released Tuesday morning, the Organization of the Petroleum Exporting Countries (OPEC) warned the Russo-Ukrainian conflict would likely have a far-reaching effect on global demand growth, although the situation is too fluid to accurately attach numbers that define the expected magnitude of that impact.

"Challenges to the global economy -- especially regarding the slowdown of economic growth, rising inflation and the ongoing geopolitical turmoil will impact oil demand in various regions," according to the report. Due to an unclear and rapidly changing situation in Ukraine, OPEC left its global oil demand growth forecast "under assessment" at 4.2 million barrels per day (bpd) for 2022, unchanged from the previous forecast, with the forecast for demand growth for countries that are part of the Organization for Economic Cooperation and Development at 1.9 million bpd and for non-OECD countries at 2.3 million bpd.

On the supply side, OPEC estimates production from the 13-member cartel increased by 440,000 bpd in February to 28.473 million bpd, with 11 of the 13 country members of the cartel having lifted output last month. Despite the large monthly increase in OPEC production, the 10 country members that are part of the OPEC+ agreement underproduced their collective 24.808 million bpd quota by 668,000 bpd in February.

Next, oil traders will turn their focus to weekly inventory report from the American Petroleum Institute scheduled for a 4:30 p.m. EDT release, followed by official data by the U.S. Energy Information Administration Wednesday morning. Analysts expect commercial crude oil inventories declined by 1.8 million barrels (bbl) during the week ended March 11 after falling 1.9 million bbl in the previous week. Gasoline stockpiles seen falling by 1.5 million bbl from the previous week, while distillate fuel inventories are expected to have decreased by 2.1 million bbl. Refinery run rates likely rose by 0.2% from the previous week to 89.5% of capacity.

In financial markets, the Federal Open Market Committee concludes its two-day policy meeting on Wednesday with consensus calling for the central bank to raise interest rates by 25 basis points. This would mark the first interest rate hike since the beginning of the pandemic.

CME Fed's Watch tool shows investors assign a 98.3% likelihood that the central bank will raise the interest rate by 25-basis points Wednesday and only a 3.7% chance for a 50-basis point increase.

The U.S. Labor Department said on Tuesday the Producer Price Index rose 0.8% in February following January's rise of 1.2%, less than expectations for a 1% increase. For the year ended February, wholesale inflation is up 10%, the report said, in line with expectations.

The oil complex came under the pressure on Tuesday after Oleksiy Arestovych, an adviser to Ukraine's President Volodymyr Zelensky, said a peace agreement with Russia could be established within one or two weeks at the earliest and by May the latest.

"There is certain progress regarding the talks between the two countries, and if President Zelensky says it is an option, it would probably happen. If the Russians would not agree to this, it wouldn't be considered as a possibility in the first place," Arestovych added.

Despite heavy shelling of heavily populated Ukrainian cities, the Russian army was unbale to make real progress on the frontlines amid logistical issues, low morale and lack of basic items like food and fuel. There are unconfirmed reports of widespread hunger among the Russian troops.

Zelensky said a fourth round of talks that started Monday was extended into Tuesday, signaling that the two parties have made progress in negotiations. Should conflict end in coming days, this would provide much needed relief for the global commodity markets under siege from tightening sanctions that threaten to further disrupt global supply chains that have spiked commodity prices.

On the session, NYMEX April West Texas Intermediate fell $6.57 to $96.44 bbl, and ICE Brent May contract plunged $6.99 to $99.91 bbl. NYMEX April RBOB futures plummeted 17.08 cents or 6% to $2.9981 gallon, and April ULSD futures slumped 24.66 cents to $3.0297 gallon.

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