DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange trimmed gains in market-on-close trade Tuesday, although all petroleum contracts settled the session higher. This occurred despite the U.S. Energy Information Administration lifting its oil production outlook through 2024 due to accelerated output gains in counties outside the Organization of the Petroleum Exporting Countries.

In its Short-term Energy Outlook released Tuesday afternoon, the Washington-based energy watchdog said global oil production this year would average 101.1 million barrels per day (bpd), up 1.1 million bpd from 2022, before rising to 102.83 million bpd next year. The increase reflects large growth in several non-OPEC countries that more than offset a 1.5-million-bpd decline in Russian oil production forecast over the period.

The United States and other non-OPEC producers outside of Russia will add 2.4 million bpd of oil production in 2023 and an additional 1.1 million bpd in 2024, according to the EIA outlook. The U.S. is forecast to be the largest source of non-OPEC production growth, contributing 40% of the gains in 2023 and 60% in 2024.

"U.S. growth is driven by increases in crude production in the Lower 48 states -- mostly in the Permian region -- as well as a combination of increases to production of hydrocarbon gas liquids and biofuels, which together account for about 40% of U.S. liquid fuels production growth in 2023 and 2024," said EIA in its monthly STEO.

Outside of the U.S., other major sources of growth in non-OPEC liquid fuels production come from Canada, Brazil, Guyana, and Norway.

Norway alone could add up to 500,000 bpd to the global oil market this year with the startup of the offshore Johan Sverdrup Phase 2 expansion project.

Tuesday afternoon, traders also positioned ahead of the weekly release of U.S. inventory data, starting with the survey from the American Petroleum Institute scheduled for 4:30 p.m. EST, followed by the EIA report Wednesday morning.

U.S. oil inventories are expected to have declined by 600,000 barrels (bbl) for the week ended Jan. 6, with forecasts ranging from a decrease of 4.5 million bbl to an increase of 4.3 million bbl. Analysts note the likely decrease would be partly because of a smaller-than-normal transfer of crude last week from the nation's Strategic Petroleum Reserve to the commercial side.

Gasoline stockpiles are expected to have increased by 600,000 bbl from the previous week, with estimates ranging from a decline of 2.5 million bbl to an increase of 4 million bbl. Stocks of distillates are seen to have fallen by 700,000 bbl for the reviewed week.

Refinery use likely increased by 5.2% from the previous week to 84.8% of capacity as refineries are seen to have increased run rates following the prior week's shutdowns related to unseasonably cold weather.

Traders will also closely monitor demand figures in this week's EIA report after cold weather severely disrupted gasoline and distillate fuel consumption, with combined fuel demand collapsing by 2.881 million bpd in the final week of 2022. For context, distillate consumption during the week ended Dec. 30 fell to the lowest level since April 2020 at 2.799 million bpd.

Earlier in the session, the oil complex got a leg up from upbeat forecasts on China and EU economic growth this year that some traders bet could lift global oil demand. Goldman Sachs on Tuesday morning said Eurozone's economy would grow by 0.6% in 2023 from a negative 0.1% forecast just three months ago. The upgrade is driven by expectations for a better-than-expected year for Europe's major industrial exporters as Chinese demand recovers from a 2022 slump.

"We maintain our view that Euro area growth will be weak over the winter months given the energy crisis but no longer look for a technical recession. This reflects more resilient growth momentum at the end of last year, sharply lower natural gas prices and earlier China reopening," said Sven Jari Stehn, chief European economist at Goldman Sachs.

Over the past month, China has rapidly jettisoned some of the world's strictest COVID-19 restrictions. These include frequent PCR tests, restricted movement, and lockdowns that severely damaged mobility and its economy. Should China's reopening prove successful, it is expected to invigorate not only domestic growth but also the global economy.

At settlement, West Texas Intermediate for February delivery advanced to above $75 per bbl at $75.12, up $0.49, and Brent March futures on ICE gained $0.45 to $80.10 per bbl. NYMEX RBOB February contract added $0.0348 to $2.3277 per gallon, and front-month ULSD futures rallied to $3.1357 per gallon, up $0.0997 on the session.

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