DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange trimmed midmorning losses during the afternoon session Tuesday after U.S. Energy Information Administration forecasted oil inventories across industrialized countries would fall in each of the next five quarters, putting upward pressure on oil prices in late 2023 and early 2024.

In its Short-term Energy Outlook released this afternoon, EIA revised higher its price forecast for Brent crude to $79.54 bbl for this year, up from $78.65 bbl seen a month ago and to $83.51 bbl in 2024. The revisions follow Sunday's (6/4) announcement by OPEC+ to extend 3.6 million bpd in production cuts through the end of 2024 and a unilateral output cut of 1 million bpd unveiled by Saudi Arabia. As a result of these curbs, OPEC's crude oil production is now expected to fall by 600,000 bpd in 2023 and then increase again by 300,000 bpd in 2024, which is still lower than EIA's previous forecast for output growth of 600,000 bpd for next year.

Oil inventories held in countries that are part of the Organization for Economic Cooperation and Development are seen gradually falling through the third quarter 2024 before reversing the downtrend.

Despite the extension of OPEC+ production cuts, EIA still forecasts global oil production would increase 1.5 million bpd in 2023 and by 1.3 million bpd in 2024, primarily because of growth from non-OPEC producers.

The oil complex came under selling pressure early in the session as investors refocused on weak demand fundamentals, particularly in the Western economies, where manufacturing industries fell into contraction last year and so far, have shown few signs of improvement. For context, U.S. manufacturing sector contracted in May for the seventh straight month and is now at the lowest level since the early days of the COVID pandemic in May 2020. The index has already been below 50 for longer than in most mid-cycle slowdowns, generally eight months or fewer. The forward-looking new orders component slumped to just 42.6 in May, signaling activity is likely to continue falling for several more months.

In China, factory activity fell sharper than expected in May on a combination of weaker domestic and international demand that will continue to be a culprit for Chinese factories now facing a "downward spiral."

The official manufacturing purchasing managers' index fell to a five-month low of 48.8, the National Bureau of Statistics said last week, down from 49.2 in April, and below the 50-point mark that separates expansion from contraction.

Also on Tuesday, traders positioned ahead of the weekly inventory report from the American Petroleum Institute on tap for a 4:30 PM ET release, followed by official data from EIA Wednesday morning.

U.S. commercial oil stockpiles are estimated to have increased by 1.1 million bbl for the week ended June 2, with expectations ranging from a decrease of 1.4 million bbl to an increase of 3.2 million bbl. The estimate for an oil stock increase is partly due to a Department of Energy report on Monday indicating it disbursed another 1.8 million bbl of crude from the nation's Strategic Petroleum Reserve to the commercial side last week. That lowers emergency crude reserves, which sit at a 40-year low, to 353.6 million bbl.

Gasoline inventories are expected to have risen 200,000 bbl from the previous week, and stocks of distillates, which is mostly diesel fuel, are expected to have gained 1 million bbl from the previous week. Refinery use likely increased by 0.5% from the previous week to 93.6% of capacity, which would be a fresh high for the year.

At settlement, West Texas Intermediate July futures softened $0.41 to $71.74 bbl after trading near five-week spot high $75.06 bbl in the immediate reaction to the announcement of the Saudi-led cuts. The August Brent contract settled the session at $76.29 bbl, down $0.42 bbl, also paring an advance from a five-week spot high at $78.73 bbl. Moving in the opposite direction, NYMEX RBOB July futures advanced $0.0399 to $2.5643 gallon and NYMEX ULSD futures softened $0.0097 to $2.3678 gallon.

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