DTN Oil

CRANBURY, N.J. (DTN) -- West Texas Intermediate on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's low volume trade session down, nursing losses through the day, while the ULSD and RBOB contracts eked out gains after trading lower for most of the session.

Weaker WTI futures follows lost refining capacity over the weekend when as many as 20 refineries in PADDs 2 and 3 were forced to shut down or cut runs because of extremely low temperatures and a massive winter storm. The falloff in demand from refiners is countering lost crude production amid wellhead freeze-offs from North Dakota, where as much as 500,000 barrels per day (bpd_ of crude oil was shut-in, to Texas.

Brent crude came under pressure ahead of the February contract's expiration on Thursday, with the February through June contracts settling within a $0.73 per barrel (bbl) range, as the market takes a cautious approach to China's reopening following Beijing's sudden end to its zero-CVOID policy.

While the end of the draconian policy is seen ushering in strong demand for commodities after three years of lockdowns, economic growth in Asia's largest economy is not expected to materialize immediately. A reluctance by many Chinese to quickly reengage in society amid a surge in COVID infections and deaths, which are seen widely underreported by Beijing, means industries needed to power economic growth will likely be short of workers.

And while Beijing is ending travel restrictions, many countries are set to impose restrictions on travelers from China. Wednesday afternoon, the United States said all passengers at least two years old from China will be required to show a negative COVID-19 test no more than two days from their departure from China, Hong Kong or Macau, beginning on Jan. 5.

Earlier this month, the Organization of the Petroleum Exporting Countries projected China's oil demand to decline 690,000 bpd or 4.5% from an estimated 15.32 million bpd in the current fourth quarter to 14.63 million bpd in the first quarter 2023. OPEC expects U.S. oil demand to slip by 23,000 bpd over the same period to 20.51 million bpd early next year, in line with an Energy Information Administration projection for a modest 18,000 bpd decline to 20.3 million bpd.

NYMEX February WTI futures settled down $0.57 at $78.96 bbl, trimming losses late session after falling to a $77.30 intraday low. ICE February Brent ended down $1.07 at $83.26 bbl, and the March contract settled $0.69 lower at $83.99 bbl. NYMEX January ULSD futures, that along with the January RBOB contract expire on Friday, settled up $0.0241 at $3.3778 gallon, widening its premium to February ULSD which ended at $3.2999 gallon. January RBOB futures settled fractionally higher at $2.3629 gallon, with the February contract up at $2.3721 gallon.

While oil products edged higher on lost refining output, a recovery is expected to be relatively quick, although some units may not restart until the middle of January, and others might consider extended maintenance periods following strong runs in the fourth quarter. EIA data shows U.S. refineries averaged a 92% run rate through the fourth quarter through Dec. 16, well above the three-year average 84.6% utilization rate, with runs averaging 93.5% of capacity during the most recent four-week period.

The disruptions to holiday travel since late last week will give way to weaker demand for gasoline in the first quarter. EIA expects domestic gasoline consumption to decline by 310,000 bpd or 3.5% from 8.75 million bpd in the fourth quarter to 8.44 million bpd in the first quarter 2023.

This afternoon's weekly report from the American Petroleum Institute will be scrutinized for early indications of the weather disruptions effect on commercial inventories. API will release its report at 4:30 PM ET, with the EIA to provide its assessment at 11 AM ET Thursday.

The market expects commercial crude oil inventory to have been drawn down by 700,000 bbl during the week-ended Dec. 23, with estimates ranging from a 4 million bbl decline to a 3 million bbl build. Gasoline inventory is seen to have changed little last week, down 100,000 bbl, although the range of expectations is for a 2.4 million bbl build to a 4 million bbl draw. Analysts expect a 2.1 million bbl draw from distillate inventory, with estimates between an 800,000 bbl and 4 million bbl decline. The U.S. refinery run rate is expected to have eased 1.3% last week.

The EIA last reported commercial crude stocks at 418.234 million bbl as of Dec. 16, 36.6 million bbl or 8% below the three-year average. EIA tallied distillate fuel inventory at 119.929 million bbl as of Dec. 16, 12.75 million bbl or 9.6% less than the three-year average, and gasoline stocks at 226.113 million bbl, 7.6 million bbl or 3.25% below the historical baseline. The refinery utilization rate averaged 90.9% during the second week of December.

Brian Milne can be reached at brian.milne@dtn.com