Crude Flat on Session after Midweek Rally on Fundamentals

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange ended flat on the session Friday, stalling near four-month highs. The RBOB and ULSD contracts pushed higher, lent support by firmer U.S. demand fundamentals and supply risk after Russian oil refineries came under drone attacks amid a systemic campaign against the country's energy infrastructure.

This week saw at least five separate drone strikes on the Russian refining complex, forcing some of the country's largest crude processing facilities to halt operations. According to preliminary estimates, at least 15% of Russia's refining capacity has been disrupted in recent days that, according to authorities, could lead to a short-term increase in crude oil exports.

In an interview with TASS News on Thursday, Russian Deputy Energy Minister Pavel Sorokin said Russia's domestic fuel market is well-supplied but warned "that crude-processing capacity will be lower this year, likely leading to higher oil exports."

Russia's Energy Minister Nikolay Shulgin said last month that Russia reduced crude-processing activity by 7% since the beginning of the year due, in part, to ongoing drone attacks by the Ukrainian military.

A drone strike on Rosneft's largest refinery, Ryazan NPK CJSC with a refining capacity of 397,000 barrels per day (bpd) located in the central region west of the Urals, was forced to shut two crude units and a vacuum unit following a drone attack March 13, according to Industrial Info Resources. A drone attack March 12 on Lukoil's 354,561 bpd Nizhegorodnefteorgsintez Refinery in Russia, could keep units at the refinery shut for several months because of the extent of the damage, said IIR.

Russia is a major supplier of middle distillates to the global markets, with roughly half the diesel it produces shipped internationally.

WTI futures were also lifted this week by a bullish weekly inventory report from the U.S. Energy Information Administration (EIA) showing commercial crude stockpiles declined for the first time in six weeks through March 8, as domestic refiners concluded most of their seasonal maintenance programs. U.S. refinery capacity utilization increased for the second straight week through March 8 to the highest level since mid-January at 86.8%, with refiners processing 390,000 bpd more crude compared to the previous week's average.

RBOB futures rallied to a $2.7240-gallon six-month high Friday following deeper-than-expected refinery turnaround activity this season, with gasoline inventories plunging 5.7 million barrels (bbl) during the first week of March while gasoline supplied to the U.S. market held above 9 million bpd for the second straight week, reaching a 9.044 million bpd 11-week high last week.

Monthly outlooks by the International Energy Agency (IEA), Organization of the Petroleum Exporting Countries (OPEC) and the EIA this week forecasting tighter than previously anticipated market balances in the second quarter on the back of ongoing production cuts from OPEC+ and firmer demand fundamentals in the United States were also bullish for oil futures.

IEA on Thursday lifted its outlook for global oil consumption growth by 110,000 bpd this year to 1.3 million bpd, citing better-than-expected economic performance in the United States 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 its latest monthly Oil Market Report.

OPEC is more bullish, projecting global demand growth of 2.2 million bpd this year and 1.8 million bpd in 2025.

At settlement, NYMEX April WTI futures slipped $0.22 to $80.83 bbl after trading at a $81.62 four-month high on the spot continuous chart on Thursday. ICE May Brent futures were little changed on the session at $85.34 bbl, trading at a $85.69 bbl four-month high on a spot continuous basis on Thursday.

NYMEX April ULSD futures advanced $0.0182 to $2.7270 gallon, paring an increase to a $2.7372 three-week high, while April RBOB futures added $0.0175 with a $2.7208 gallon settlement.

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

Liubov Georges