DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced more than 2% on Tuesday after U.S. Energy Information Administration downgraded its global oil forecast this year, citing production cuts from the OPEC+ coalition and output losses in Russia.

In its Short-term Energy Outlook released Tuesday afternoon, Washington-based energy watchdog reduced its forecast for OPEC's crude oil production by around 500,000 barrels per day (bpd) for the second half of the year. EIA now expects OPEC's oil production will fall by an average 400,000 bpd this year compared with 2022. The expected decline is substantially below than 1.2 million bpd production cut announced by the OPEC members on April 3rd as the coalition has largely underproduced on its prior targets and was unlikely to meet them in coming months.

"In March, OPEC produced less than its previous targets, and in our March STEO, we had assumed that OPEC production would fall further below the prior production targets in the coming month," said EIA in its monthly outlook.

For Russia, EIA estimates petroleum and other liquids production will decline from 10.9 million bpd in 2022 to 10.6 million bpd in 2023 and to 10.4 million bpd in 2024, which are both about 300,000 bpd more than the agency forecast in last month's STEO.

"The observable impact on Russia's liquids production and exports in the latest available data has been less significant than expected. Although we still expect Russia's production to fall this year, its crude output outpaced our earlier expectations because its exports have continued to find buyers in markets outside of Europe," said EIA.

Also on Tuesday, oil traders positioned ahead of weekly inventory survey from the American Petroleum Institute scheduled for a 4:30 p.m. ET release. U.S. commercial crude oil stockpiles are expected to have declined by 600,000 barrels (bbl) for the week ended April 7, with estimates ranging from a decrease of 4.7 million bbl to an increase of 3 million bbl. Gasoline stockpiles are expected to have declined by 1.7 million bbl from the previous week, while stocks of distillates are seen to have decreased by 500,000 bbl. Refinery use likely increased by 0.5% from the previous week to 90.1% of capacity.

In financial markets, U.S. dollar index lost more than 0.35% in value against a basket of foreign currencies, further spurring gains for front-month West Texas Intermediate futures.

CME's FedWatch Tool shows nearly 70% of investors expect the Federal Open Market Committee will raise the federal funds rate by another 25-basis points at their next meeting in early May, up from 44% seen just a week ago.

The repricing of the overnight bank borrowing rate might have been triggered by an alarming jump in consumer inflation expectations released Monday by the Federal Reserve Bank of New York. Year-ahead inflation expectations unexpectedly leapt 0.5% from the previous month to 4.7%, with consumers most concerned about costs for college tuition and shelter.

"Expectations about year-ahead price increases for gas, food, cost of rent, and medical care all continued to decline, while expectations for the cost of college education increased. Home price growth expectations rose but remain below pre-pandemic levels. Credit access perceptions and expectations deteriorated," according to the Fed bank.

With that in mind, markets are likely to key in on Wednesday's release of March's consumer price index, with consensus calling for headline inflation to have eased from the prior month but prices paid for core services to remain stubbornly high. Headline and core inflation are seen to have increased by 0.3% and 0.4%, respectively, from the prior month.

While softer than the 0.5% advance in February, such an increase would match the September-February average and keeps year-on-year figures stubbornly high. That will likely tip the scales toward another interest rate hike at the Fed's May 2-3 meeting, despite signs of an overall slowing of the broader economy.

At settlement, WTI futures for May delivery climbed $1.79 to $81.53 bbl, and international benchmark Brent advanced $1.43 to $85.61 bbl. NYMEX May RBOB futures climbed $0.0573 to $2.8652 gallon, with the May ULSD contract moving in the opposite direction from the rest of the complex, easing $0.0132 to $2.6682 gallon.

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