DTN Oil

WASHINGTON, D.C. (DTN) -- The international crude benchmark Brent contract for May delivery on the Intercontinental Exchange settled above $85 per barrel (bbl) for the first time this year on Thursday after major forecasting agencies this week warned of an expanding supply deficit in the global oil market exacerbated by extended production cuts by the OPEC+ coalition and strengthening demand fundamentals in North America and the Asia-Pacific region.

The International Energy Agency (IEA) this morning lifted its outlook for global oil consumption growth by 110,000 barrels per day (bpd) this year to 1.3 million bpd, citing better-than-expected economic performance in the U.S. and surging demand for bunker fuels.

"Ongoing Houthi shipping attacks in the Red Sea kept a firm bid under crude prices. With oil tankers taking the longer route around Africa, more oil was kept on water, further tightening the Atlantic Basin market and sending crude's forward price structure deeper into backwardation," said IEA in today's monthly Oil Market Report.

Despite the upgrade, IEA's estimate is less bullish compared to demand growth assessments from the Organization of the Petroleum Exporting Countries (OPEC) and U.S. Energy Information Administration (EIA) released on Tuesday. Out of the three forecasters, OPEC adopted the most bullish outlook on global oil consumption, projecting demand growth of 2.2 million bpd in 2024 and 1.8 million bpd next year.

OPEC continues to see strong demand gains stemming from air travel and increased road mobility, including on-road diesel and trucking, as well as healthy industrial, construction and agricultural activities, particularly in the Asia-Pacific region. Similarly, capacity additions and petrochemical margins in China and the Middle East are expected to contribute to oil demand growth.

On the supply side, OPEC, IEA and EIA forecast slowing production gains from non-OPEC+ countries that, when combined with supply cuts from within the coalition, will lead to a growing supply deficit in the second quarter. For the year, IEA sees global production will still increase by 800,000 bpd to 102.9 million bpd, including downward adjustments to OPEC+ output. In its report, IEA assumes OPEC+ will hold voluntary production cuts of 2.2 million bpd in place through the end of 2024, unwinding them only when such a move is confirmed by the producer alliance.

In comparison, EIA lowered its global production growth outlook to 400,000 bpd, down by a sizable 200,000 bpd from the previous month's outlook.

"Because some OPEC+ members are extending voluntary production cuts into the second quarter and because Russia added new voluntary production cuts, we now expect oil markets to be much tighter in 2Q24 than we previously expected," said EIA in Tuesday's Short-term Energy Outlook.

EIA further noted the current OPEC+ agreement has two types of production cuts. The first cuts are officially stated production targets and the second are additional voluntary cuts pledged by some OPEC+ participants. As a result, EIA estimates global oil inventories will fall by 900,000 bpd in the second quarter compared to previously envisioned stock levels to remain relatively unchanged.

At settlement, NYMEX April West Texas Intermediate futures advanced $1.54 to $81.26 bbl, and ICE May Brent futures rallied $1.39 to $85.42 bbl. April ULSD futures on NYMEX added $0.0237 to $2.7088 gallon, while front-month RBOB futures moved up $0.0418 to $2.7033 gallon.

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