WASHINGTON, D.C. (DTN) -- Reversing morning losses triggered by weak trade data from China, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Tuesday's session with solid gains after U.S. Energy Information Administration forecast the world oil market would slide into a supply deficit during the remainder of 2023, citing steep production cuts from OPEC+'s largest producers, Saudi Arabia and Russia, and increased global oil consumption.
In its Short-term Energy Outlook released this afternoon, EIA said it expects OPEC+ production cuts combined with higher demand to put downward pressure on global oil inventories through the end of the year. Washington-based energy watchdog estimates crude inventories across industrialized countries will decrease by an average of 400,000 bpd in the second half of the year before reversing back to builds in the second quarter of 2024.
"The Brent crude oil spot price in our forecast increases in the coming months, reflecting our expectations of tightening balances in global oil markets. Crude oil prices begin to ease in 2Q24 as supply growth leads to some rebuilding of global oil inventories later in 2024," said EIA.
United States, Canada, Brazil, Norway, and Guyana are expected to drive growth in global oil supply with combined production gains of 2.1 million bpd this year and 1.2 million bpd in 2024. The United States is expected to lead non-OPEC growth, contributing 1.3 million bpd of supply growth in 2023 and 500,000 bpd in 2024.
Oil traders now await the release of weekly inventory data from the American Petroleum Institute scheduled for 4:30 PM ET, followed by the official report from EIA Wednesday morning.
A consensus of analysts and traders surveyed by Wall Street Journal revealed U.S. commercial crude oil inventories likely increased 1.3 million bbl for the week ended Aug. 4. The expectations for a build follow a record-breaking 17 million bbl drawdown from commercial inventories in the prior week as oil exports surged past 5 million bpd.
Gasoline inventories are expected to have fallen by 300,000 bbl from the previous week, while stocks of distillates are seen increasing by 200,000 bbl. Refinery use likely climbed by 0.3% from the previous week to 93% of capacity.
Early in the session, oil futures came under selling pressure after China reported its outbound shipments plunged by more than 14% last month, posting its worst decline since the early days of the pandemic in February 2020. Shipments to the United States and European Union have been hit particularly hard, registering a 20% decline from a year earlier.
The data clearly shows global demand for Chinese manufactured goods is lagging far behind pre-COVID trends amid ongoing trade tensions with Western economies and the "de-risking" of global supply chains. Russia was the only country that saw a major spike in Chinese exports, up 52% from a year earlier, led by shipments of automobiles and other high-value goods.
Domestically, bank shares slumped and the U.S. dollar rallied in afternoon trade Tuesday after Moody Investors Services downgraded the credit rating of several U.S. regional banks, including M&T Bank, Pinnacle Financial, and Webster Financial among others. Moody has further warned that it is now reviewing six larger lenders for a potential credit downgrade.
"Rising funding costs and declining income metrics will erode profitability, the first buffer against losses," said Moody's in explaining the downgrades. "Asset risk is rising, in particular for small and mid-size banks with large [commercial real estate] exposures."
On the session, the U.S. dollar rallied 0.47% against a basket of foreign currencies to settle at 102.340, limiting gains for the West Texas Intermediate September contract, which gained $0.98 bbl to $82.92 bbl. ICE October Brent advanced $0.83 to $86.17 bbl. NYMEX September RBOB futures moved $0.0407 higher to $2.8451 gallon, while September ULSD contract advanced $0.0701 gallon to $3.0856.
Liubov Georges can be reached at Liubov.Georges@dtn.com