DTN Oil

WASHINGTON (DTN) -- Recouping a portion of Monday's losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange booked solid gains in afternoon trading Tuesday after the U.S. Energy Information Administration forecast global oil inventories will draw down rapidly during the first quarter, putting upward pressure on oil prices, before the physical market rebalances in the second half of the year.

Worldwide oil inventories will decline by 800,000 bpd during the first three months of 2024, pressured by steep production cuts from OPEC+ and slowing supply growth from non-OPEC countries. EIA estimates global oil production will slow sharply this year to just 600,000 bpd from a neck-breaking pace of 1.7 million bpd seen over the course of 2023. Most of that growth in oil production will continue to be realized in the United States, Brazil, and Guyana. For OPEC+ countries, total oil production will fall 600,0000 bpd this year before ongoing production cuts of 2.2 million bpd first introduced in June 2023 will expire at the year.

The most recent industry data suggests that key OPEC+ oil producers are indeed adhering to their pledged supply targets, with Russia's seaborne oil shipments during the first week of January dropping 500,000 bpd below their May–June baseline. On Nov. 30 during OPEC+'s final meeting of 2023, Russia pledged to deepen export cuts by 500,000 bpd after Saudi Arabia said it would extend a unilateral 1 million bpd production cut into the first three months of 2024. In addition to Russia and Saudi Arabia, several other OPEC+ members announced deeper production cuts of 2.2 million bpd.

Aside from the EIA's Short-term Energy Outlook, traders will parse through the weekly U.S. inventory survey released by the American Petroleum Institute at 4:30 PM ET, followed by government data Wednesday morning.

U.S. crude oil inventories likely fell 600,000 bbl during the first week of January following a sizable 5.5 million bbl drawdown in the previous week. For refined products, analysts expect gasoline supplies to have increased by 2.1 million bbl last week, and stocks of distillates, mostly diesel fuel, are seen having risen 1 million bbl, adding to hefty builds reported in the previous week. Refinery capacity use likely eased 0.8% to 92.7%, according to the survey.

The oil complex came under intense selling pressure at the start of the week after Saudi Aramco, the world's largest oil company, slashed February official selling prices for its oil to all key markets by the most since November 2021. The Saudi's price-setting mechanisms correspond directly to the appetite for crude oil in the global economy. The fact that Aramco cut OSPs to all markets by a sizable $2 bbl in a single month underscores weak demand fundamentals at the start of 2024.

At settlement, February West Texas Intermediate futures on NYMEX advanced $1.47 to $72.24 bbl, and the international crude benchmark Brent contract for March delivery also gained $1.47 bbl to $77.59 bbl. NYMEX February ULSD futures added $0.0735 to $2.6504 gallon, while NYMEX February RBOB futures gained $0.0490 to $2.0768 gallon.

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