U.S. oil futures ended lower Wednesday for the first time in three sessions, pressured by government data showing a fifth consecutive weekly climb in domestic commercial-crude inventories.
However, Brent’s front-month contract edged up to settle at the highest level since November. A report said major oil producers in OPEC+ may consider extending their voluntary production cuts into the second quarter and analysts pointed out signs of tighter global supplies, likely providing some support to the market.
Price moves
-
West Texas Intermediate crude
CL00,
+0.26%
for April delivery
CL.1,
+0.26% CLJ24,
+0.26%
fell 33 cents, or 0.4%, to settle at $78.54 a barrel on the New York Mercantile Exchange after posting back-to-back session gains. -
April Brent crude
BRNJ24,
-0.07% ,
the global benchmark, ended nearly flat ahead of Thursday’s expiration, up 3 cents at $83.68 a barrel on ICE Futures Europe. May Brent
BRN00,
+0.34% BRNK24,
+0.34% ,
the most actively traded contract, declined by 51 cents, or 0.6%, at $82.15 a barrel on ICE Futures Europe. -
March gasoline
RBH24,
+1.72%
shed 3.1% to $2.27 a gallon, while March heating oil
HOH24,
+0.67%
lost 3.2% to $2.66 a gallon. -
Natural gas for April delivery
NGJ24,
-0.48%
settled at $1.89 per million British thermal units, up 4.3% on its first full trading day as a front-month contract.
Market drivers
“Crude stocks built once again as refinery runs continue to hold well below year-ago levels amid both planned and unplanned maintenance” and as the outage at BP’s
BP,
BP,
Whiting, Ind., refinery drags on, Troy Vincent, senior market analyst at DTN, told MarketWatch.
Weekly declines in U.S. petroleum-product stocks reflect this weakness in oil-refinery runs, but even the draws to refined products were limited given the continued weakness in domestic demand, he said.
In the U.S. Wednesday, the EIA reported that domestic commercial-crude inventories rose by 4.2 million to 447.3 million barrels for the week ending Feb. 23. The EIA has now reported gains in crude supply for five weeks in a row.
On average, analysts had expected the report to show an increase of 2 million barrels, according to a survey conducted by S&P Global Commodity Insights. On Tuesday, the American Petroleum Institute reported a rise in crude inventories of 8.4 million barrels, according to a source citing the data.
The EIA report also revealed weekly supply declines of 2.8 million barrels for gasoline and 500,000 barrels for distillates. The S&P Global Commodity Insights analyst survey showed forecasts for inventory declines of 2.1 million barrels for gasoline and 500,000 barrels for distillates.
U.S. oil production was unchanged in the latest week, holding at a record 13.3 million barrels a day, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub were up by 1.5 million barrels at 31 million barrels.
Although U.S. crude stocks have been building, “the global market has been tightening,” said Vincent. “This is evident from examining time spreads which have become increasingly backwardated as we have moved through February.” Backwardation refers to a situation in crude contract values where prices for oil for delivery in the near future are higher than those for later deliveries.
The front-month Brent oil contract for April delivery, which expires at the end of Thursday’s session, eked out a gain of just 3 cents Wednesday, but marked the highest front-month contract settlement since Nov. 6, according to Dow Jones Market Data.
DTN’s first half of 2024 outlook forecasts that OPEC+ may be forced to continue to extend output cuts beyond the first quarter “in order to support prices, and we continue to believe that this will be the case,” said Vincent.
OPEC+, made up of the Organization of the Petroleum Exporting Countries and its allies, including Russia, was weighing an extension of voluntary production cuts into the second quarter, Reuters reported, citing unnamed sources. The voluntary reductions expire at the end of the first quarter and the report said a decision on an extension is expected in the first week of March.
OPEC+ agreed in November to voluntary cuts of 2.2 million barrels a day in the first quarter of 2024, with Saudi Arabia rolling over its voluntary cut of 1 million barrels a day.
“Since announcing the voluntary cuts at the end of November 2023, ICE Brent has traded soft amid demand concerns and [has] just recovered recently only to November levels” of $83 a barrel, wrote Ewa Manthey and Warren Patterson, strategists at ING, in a note. ”The demand prospects remain muted in the short term due to the economic slowdown and the group may need to keep cuts in place to maintain market balance.”
Commodities Corner: War wasn’t enough to budge oil prices. Here’s what could spark a big move.
Overall, crude prices have been searching for direction as several factors weigh on the market, said Tariq Zahir, managing member at Tyche Capital Advisors.
“‘With summer driving season and supply cuts still being implemented, and the risk of a wider conflict in the Middle East, we feel the risk is to the upside in prices for crude oil in the days and weeks ahead.’ ”
Still, “with summer driving season and supply cuts still being implemented, and the risk of a wider conflict in the Middle East, we feel the risk is to the upside in prices for crude oil in the days and weeks ahead,” he said.
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