DTN Oil

CRANBURY, N.J. (DTN) -- Nearest-delivered oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange settled Thursday's session mixed, with crude futures gaining on slowing U.S. output and disrupted exports from Iraq. Meanwhile, the gasoline and diesel contracts declined, as a heavy and extended refinery maintenance season is nearing completion.

The Federal Reserve Bank of Dallas on Wednesday released its quarterly Energy Survey, which identified growth in Texas' oil and natural gas production stalled during the first quarter on higher costs and an uncertain and bearish outlook for the U.S. economy. Of the 147 energy firms responding to the survey, 68% reported greater uncertainty over their outlook.

"Crude oil is about to join natural gas in contango, which is highlighting a nervous macroeconomic picture. There are plenty of buyers at this calendar strip price and not a lot of sellers," explained an executive at an energy firm responding to Fed bank's survey.

The comment aligns with recent data from the Commodity Futures Trading Commission showing speculators unwinding long positions in West Texas Intermediate futures while producers put on hedges.

"Volatility in commodity markets and recent banking turmoil continue to play into business dynamics and are leading to a reduction in spending plans," an energy firm told the Dallas Fed.

As the bearish outlook leads to less investment in domestic production, the slowdown could lead to a tight crude market should demand surprise to the upside. Energy Information Administration on Wednesday reported a 100,000-barrel-per-day (bpd) decline in domestic crude production to 12.2 million bpd during the week-ended March 24. In its most recent Short-term Energy Outlook, EIA projected U.S. crude production to average 12.31 million bpd in the first quarter, 12.43 million bpd in the second quarter, and 12.44 million bpd for all of 2024. If realized, U.S. crude production would grow 560,000 bpd or 4.7% this year, a slower pace than the 629,000 bpd or 5.6% annualized growth rate for 2022.

Internationally, while a protracted strike has disrupted refinery operations in France, diminishing crude oil consumption, a halt to about 450,000 bpd of Iraqi crude exports through the Kirkuk-Ceyhan pipeline is prompting well shut-ins in northern Iraq.

Baghdad halted exports through the pipeline which leads to the Turkish port of Ceyhan on Saturday, March 25, following a ruling by the International Chamber of Commerce over violations of a joint agreement between Iraq and Turkey. Baghdad said the ICC ruled in its favor that Ankara owed it damages for violating the agreement by allowing crude exports from the Kurdish Regional Government to flow through the pipeline, while Ankara said the ICC ruled in Turkey's favor in a counterclaim that it is owed a pipeline throughput fee.

Iraq's constitution recognizes the Kurdistan Region of northern Iraq as autonomous, although Baghdad views oil sales from Kurdistan by the Kurdistan Regional Government as illegal. The governments of both countries said they would work towards a durable solution that allows for the resumption of Iraqi oil through the pipeline, although there is no indication when this arrangement will be reached.

NYMEX May WTI futures were also lent support from a weaker U.S. dollar, with the dollar index settling down 0.47% at a 101.821 eight-week low. The dollar weakness was realized as easing concern over the banking sector prompted trade away from the safe-haven currency to equities. Major equity indices advanced Thursday, with the Dow Jones Industrial Average gaining 141.43 points or 0.43% to 32,859 and the S&P 500 Index pushed above 4,000 to 4,050.83, up 0.57%.

NYMEX May WTI futures settled up $1.40 at a more than two-week high on the spot continuous chart. ICE May Brent futures settled $0.99 higher at $79.27 per barrel (bbl) ahead of expiration Friday afternoon, with the June contract settling at a $0.67 discount to May delivery.

Moving in an opposing direction, NYMEX oil product futures settled down ahead of Friday's expiration by the April contracts and following increasing refinery production. EIA on Wednesday reported a 1.7% increase in the domestic refinery run rate to 90.3% of capacity for the week ended March 24, the highest utilization rate in three months, as refiners gradually return units from an extended heavy turnaround season.

Refiners in 2022 that were able delayed maintenance as they addressed supply shortfalls that led to a surge in margins. That led to the heaviest maintenance season during the first quarter in five years. There is still an estimated 1 million bpd of refining capacity offline for planned maintenance, with most of those units seen returning in April.

NYMEX April RBOB futures settled down $0.0067 at $2.6614 per gallon, while the May contract narrowed its discount to the expiring contract to $0.0236 with a $2.6378-per-gallon settlement. April ULSD futures settled down $0.0334 at $2.6237 per gallon, while the prompt spread narrowed $0.0317 to $0.0599 backwardation.

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