Oil Range-Bound as OPEC, EIA Eye Tighter Market Balances

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- West Texas Intermediate (WTI) futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange settled Tuesday's session slightly lower. This was despite the Organization of the Petroleum Exporting Countries (OPEC) and U.S. Energy Information Administration (EIA) forecasting oil market fundamentals will continue to strengthen in the second quarter, reflecting an extension of voluntary production cuts by the OPEC+ coalition and robust demand growth in North America and Asia-Pacific regions.

In its Monthly Oil Market Report released this morning, OPEC left global oil demand projections for an annual increase of 2.2 million barrels per day (bpd) unchanged. The lion's share of the growth was realized in developing countries outside the Organization for Economic Cooperation and Development (OECD) bloc.

"The major non-OECD economies of China and India, alongside other developing Asian nations, are anticipated to maintain their growth momentum and play a significant role in driving global economic growth, while growth across the OECD economies is projected at relatively lower rates," according to OPEC.

Robust demand projections for 2024 coincide with lower estimates for production growth outside of OPEC+ coalition, according to the report, which was downgraded by 120,000 bpd from the prior month to 1.19 million bpd.

In 2024, the main drivers for oil supply growth are expected to be the U.S., Canada, Brazil and Norway. The largest declines are anticipated in Russia and Mexico.

Meanwhile, OPEC+ on March 3 announced an extension of voluntary production cuts of 2.2 million bpd through the second quarter with Russia pledging additional cuts to its export quotas.

Because of that extension, EIA estimates global oil markets will tighten significantly more this year than previously estimated. Washington-based energy watchdog notes the current OPEC+ agreement has two types of production cuts -- the officially stated production targets by all coalition members, and the secondary cuts that are additional voluntary reductions pledged by some OPEC+ participants on Nov. 30, 2023.

"Because some OPEC+ members are extending these voluntary production cuts and because Russia added new voluntary production cuts, we now expect forecast global oil inventories will fall by 900,000 bpd in 2Q24. Last month, we had expected inventories to remain relatively unchanged in 2Q24," said OPEC in its STEO this afternoon.

As a result of tighter market balances, the price of Brent crude will average around $88 per barrel (bbl) for the second quarter, which is $4 bbl higher than in February's forecast. EIA expects the price of Brent crude to remain relatively flat for the rest of the year before increasing inventories -- when OPEC+ supply cuts are set to expire -- will start putting slight downward pressure on the price in 2025.

"It remains to be seen how strictly the latest round of voluntary OPEC+ production cuts are adhered to, which has the potential to add additional oil supplies back on the market and lessen the expected tightness in near-term oil balances and the corresponding upward pressure on oil prices," said EIA.

At settlement, WTI futures for April delivery softened $0.37 to $77.56 bbl and while Brent for May delivery edged lower to $81.92 bbl, down $0.29. Front-month RBOB contract added a modest $0.0059 to settle at $2.5864 gallon, and April ULSD futures declined to $2.6165 gallon, down $0.0353.

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

Liubov Georges