Oil Gains as US Stocks Fall, Market Balances Tighten in Q2

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shifted higher in early morning session Wednesday after the American Petroleum Institute reported commercial oil inventories in the United States declined for the first time in six weeks in the week ending March 8, while tighter market balances forecasted by the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration in their monthly outlooks helped to further lift Brent crude above a key technical level.

International benchmark Brent for April delivery jumped above the 200-day moving average of $82.55/bbl early Wednesday on a combination of upbeat demand forecasts for the second quarter and falling U.S. inventories. The API reported late Tuesday that commercial oil stocks in the U.S. tumbled 5.521 million bbl last week, following a 1.4 million bbl build reported during the week-ended March 1. If confirmed by EIA data released later this morning, this would mark the first drawdown from U.S. commercial oil stockpiles since mid-January. Stocks at the Cushing, Oklahoma tank farm, also dropped 998,000 bbl as of March 8.

In the gasoline complex, API data showed inventories slid 3.75 million bbl, more than three times the expected draw of 1.2 million bbl. It is worth noting that implied demand for gasoline spiked 546,000 bpd during the first week of March to above 9 million bpd, suggesting a rebound in driving demand into the spring months.

Distillate inventory also dropped 1.162 million bbl as of March 8, nearly twice the call for a decrease of 600,000 bbl. Next, oil traders await the release of the weekly inventory report from the EIA, scheduled for 10:30 a.m. EDT release.

Underlying gains in the oil complex, both OPEC and the EIA estimated in their monthly outlooks that oil market fundamentals will continue to strengthen in the second quarter. A combination of the extension of OPEC+ voluntary supply cuts and robust demand dynamics in the Asia-Pacific region will significantly tighten market balances, according to the EIA forecast. The 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 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 EIA in its latest short-term Energy Outlook.

As a result of tighter market balances, the price of Brent crude will average around $88 bbl for the second quarter, which is $4 bbl higher than in February's forecast. EIA expects the price of Brent crude will 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 price in 2025.

Near 7:30 a.m. EDT, WTI futures for April delivery rallied $1.15 to $78.71 bbl, while Brent for May delivery jumped above $83 bbl, up by $1.07 bbl. The front-month RBOB contract added $0.0352 to trade near $2.6225 gallon, and April ULSD futures advanced to $2.6700 gallon, up by $0.0538 gallon.

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

Liubov Georges