DTN Oil

WASHINGTON (DTN) -- While the front-month ULSD contract ended lower, crude and RBOB futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session higher. Futures were supported by concerns over less available supply on the global market as the European Union mulls a potential ban on Russian oil imports that would further restrict worldwide oil trade. Market participants also priced in lost supply due to an ongoing disruption in Libya, where violent protests have shut-in more than 500,000 barrels (bbl) in daily output leading to a declaration of force majeure on exports.

Global oil markets face an even greater supply disruption after demonstrations in Libya that demand the resignation of Libyan Prime Minister Abdul Hamid shut down El Sharara, the country's biggest oil field. Protesters also forced two of the North African nation's ports to halt loadings with output halted at the El Feel field.

The Libyan outages are occurring as Russia's unprovoked war in Ukraine disrupted an already tight market, with the late February invasion prompting some traders to shun Russian crude and countries including the United States and United Kingdom to ban Russian oil imports. The European Union is now considering banning Russian oil.

Russia's Deputy Prime Minister Alexander Novak said last week that if more nations banned Russian energy flows, prices may "significantly exceed" historic highs.

In a weekend phone call, Russian President Vladimir Putin and Saudi Arabian Crown Prince Mohammed bin Salman gave a "positive assessment" of their efforts to stabilize the oil market, suggesting that no change in production policy is likely. The two nations lead the alliance that groups the Organization of Petroleum Exporting Countries and its partners, known as OPEC+.

As OPEC+ stands firmly against accelerating production increases, the United States and 30 member countries of the International Energy Agency have announced the planned release of millions of barrels of strategic reserves to bridge the gap in lost Russian supply and quell surging price pressures. The Department of Energy this afternoon announced winning bidders for 30 million bbl of crude oil from the U.S. Strategic Petroleum Reserve and said it plans to post a Notice of Sale for another 40 million bbl on May 24.

Despite the release of reserves, data published Wednesday by the Energy Information Administration show U.S. commercial crude oil inventories declined by a massive 8 million bbl during the week-ended April 15 as refiners hiked run rates and crude exports surged to a more than two-year high at 4.27 million barrels per day (bpd).

Even as the EIA reported a 100,000-bpd increase in U.S. crude oil production to 11.9 million bpd last week, analysts estimate U.S. shale producers could take more time to further lift output as public companies maintain capital discipline while a backlog of drilled but uncompleted wells known as DUCs tumbles. The number of DUCs fell to 4,273 in the seven key shale regions in March, EIA said in its latest monthly Drilling Productivity Report released this week, down 42% since the beginning of 2021. In the Permian alone, the number of DUCs dropped by 71 from February to stand at 1,309 in March -- the lowest number of DUCs since early 2017. The faltering number of DUCs in the Permian indicates U.S. producers will now have to invest more capital in drilling new wells from the very start compared to the lower-cost DUC inventory.

At settlement, West Texas Intermediate futures for June delivery advanced $1.60 to $103.79 per bbl, and June Brent gained $1.53 to $108.33 per bbl. NYMEX RBOB May futures rose 5.38 cents to $3.3386 per gallon, and the front-month ULSD contact declined 7.23 cents to $3.9008 per gallon.

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

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