DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange softened early Friday, although both benchmarks are heading for solid weekly gains on a combination of bullish near-term demand outlooks from major forecasting agencies, falling oil inventories in the United States, and intensifying attacks against Russian energy infrastructure, forcing some of the country's largest refineries to halt operations this week.

Around 700,000 bpd of Russian refinery capacity has been disrupted this week following a barrage of Ukrainian drone strikes against the country's energy infrastructure. Rosneft's largest refinery, PJSC's Ryazan complex located in the central region west of the Urals was forced to terminate all operations this week, according to multiple media reports, due to extensive damage to several crude processing units. Russia is a major supplier of middle distillates to the global markets; with roughly half of all diesel it produces being shipped internationally. Hence, a prolonged disruption in Russian refinery production could boost global diesel prices in coming months.

The oil complex was lent further price support this week from a bullish inventory report in the United States, showing commercial crude oil stockpiles declined for the first time in six weeks as domestic refiners concluded most of the 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. In the gasoline complex, inventories plunged 5.7 million bbl in the reviewed week as demand for motor fuel held above 9 million bpd for the second straight week, reaching a 9.044 million bpd 11-week high last week.

Crude contracts were also lent upside support by a second weekly decline in domestic oil production, falling another 100,000 bpd to 13.1 million bpd from the 13.3 million bpd record high output rate for the four weeks through Feb. 23.

However, the main catalyst for this week's rally was upbeat demand revisions from major forecasting agencies, including the U.S. Energy Information Administration, Organization of the Petroleum Exporting Countries, and International Energy Agency, that raised concerns over an expanding market deficit in the second quarter.

The IEA on March 14 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.

Despite the upgrade, IEA's estimate is less bullish compared to demand growth assessments from the Organization of the Petroleum Exporting Countries and U.S. Energy Information Administration 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.

Near 7:30 a.m. EDT, NYMEX April West Texas Intermediate futures slipped $0.43 to $80.83 bbl, and ICE May Brent futures declined $0.40 to $85.01 bbl. April ULSD futures on NYMEX fell $0.0162 to $2.6918 gallon, while front-month RBOB futures softened $0.0028 to $2.7005 gallon.

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