DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session higher in reaction to a Wall Street Journal report indicating Saudi Arabia is lobbying for an additional 1 million bpd production cut equally distributed among OPEC+ producers in a move that is seen limiting a projected supply overhang during the first quarter 2024.

The 23-nation alliance, collectively known as OPEC+, has focused on deeper production cuts in a marathon series of tense negotiations leading up to the Joint Ministerial Monitoring Committee meeting delayed to Thursday. Wall Street Journal reported the proposed cut could be as deep as 1 million bpd and effective for the first three months of 2024 when global oil demand is seasonally weak. Saudi Arabia, Russia, and other OPEC+ producers have been collectively reducing supplies by 5 million bpd since mid-summer, but the measure failed to arrest a buildup in global oil inventories.

Wednesday's inventory report released by the Energy Information Administration showed U.S. commercial oil stockpiles increased for the sixth consecutive week through Nov. 24, building by nearly 30 million bbl since mid-October. Crude stocks in the Strategic Petroleum Reserve also rose 300,000 bbl on the week. U.S. oil stockpiles are often used as a proxy for the global inventory level due to their transparency.

Speculation is growing, however, that deeper OPEC+ cuts face stiff opposition from the United Arab Emirates along with African producers, namely Angola and Nigeria, which resist lower production baselines despite weaker market fundamentals.

Under terms of a June 4 agreement, Nigeria and Angola agreed to lower their production targets until further revision in exchange for a higher output ceiling for the UAE. Production capacities for Nigeria and Angola are up for revision based on assessments from three independent consultants -- IHS, Wood Mackenzie, and Rystad Energy, in order to identify their production plans for 2024. Since then, both African producers managed to raise their crude output somewhat but still stayed below the agreed quotas for most of 2023.

Wednesday's higher settlements in the oil complex come despite an overwhelmingly bearish EIA inventory report showing nationwide oil and refined product stockpiles rose by a total 8.6 million bbl last week, which included Thanksgiving Day, with demand for gasoline sliding 6% below the seasonal five-year average.

Gasoline supplied to the U.S. market, a measure of demand, eroded for each consecutive week so far this month, falling towards the lowest weekly average since late September at 8.206 million bpd. Gasoline stockpiles increased 1.8 million bbl in the reviewed week to 218.2 million bbl, about 2% below the five-year average. Market consensus called for gasoline inventories to have fallen by 800,000 bbl.

In the distillate complex, government data showed consumption fell off a cliff, plunging 1 million bpd last week to 3.014 million bpd, some 25% below the 2022 demand rate. It is not unusual for distillate demand to weaken during the holiday week, but the curve of that decline was much steeper compared to previous years. As a result, distillate stocks jumped 5.2 million bbl in the reviewed week to 110.8 million bbl, narrowing a deficit against the five-year average to 10% from 13.5% seen in the prior week.

At settlement, January WTI futures advanced $1.45 bbl to $77.86 bbl. Brent for January delivery rallied $1.42 to $83.10 bbl, and next-month February delivery finished the session with $0.22 discount to prompt delivery ahead of the January contract's expiration Thursday afternoon. Moving in the opposite direction, NYMEX December ULSD futures declined $0.00185 to $2.8885 gallon, while the December RBOB contract rallied $0.0536 to $2.2836 gallon.

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