April WTI crude oil (CLJ24) Tuesday closed down -0.37 (-0.47%), and Apr RBOB gasoline (RBJ24) closed up +0.59 (+0.23%).
Oil prices were undercut Tuesday after the U.S. DOE Energy Information Administration (EIA), in its Short-Term Energy Outlook, forecasted that U.S. crude oil production in 2024 will rise +2.0% y/y to 13.19 million bpd, +0.7% higher than the previous projection of 13.10 million bpd. The EIA is predicting that U.S. oil production in 2025 will increase by +3.5% y/y to 13.65 million bpd, 1.2% higher than the previous forecast. Higher U.S. production will offset to some extent the OPEC+ production cuts. The EIA is forecasting a global oil deficit of 260,000 bpd this year, but a surplus of 360,000 bpd in 2025.
OPEC, in its monthly report released on Tuesday, kept its forecasts roughly unchanged for oil supply and demand in 2023 and 2024. OPEC is still forecasting that world oil consumption in 2024 will increase by a "robust" 2.2 million bpd (+2.2%) to a record 104.5 million bpd. OPEC noted in its report that OPEC+ has not met its agreed-upon production cut due in part to overproduction by Iraq.
OPEC+ on March 3 announced that it would extend its current crude production cuts of about 2 million bpd until the end of June. The group said its crude production cuts will be "returned gradually subject to market conditions" after the second quarter. However, OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas. Also, Vortexa on March 4 said that OPEC+ compliance with crude production cuts is still "questionable." Vortexa said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are "little indications that Russia is actively cutting either crude production or exports."
A recovery in Russian crude refining from Ukrainian drone attacks is negative for prices. Bloomberg calculations show Russia processed 5.44 million bpd of crude during the Feb 15-28 period, more than +4% above levels in the first half of February. Several Russian oil processing and storage facilities were damaged by Ukrainian drone attacks but have been repaired and are running near capacity. Bloomberg reported on Tuesday that Russia's seaborne crude oil exports in the week ended March 10 rose +590,000 bpd and that Russia's flows were 420,000 bpd above Russia's pledge.
Crude prices have underlying support from the Israel-Hamas war and concern that all-out war might spread to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on Oct 7. Also, the U.S. and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. Attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -8.1% w/w to 69.01 million bbl as of Mar 1.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of March 1 were -1.3% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average. U.S. crude oil production in the week ending Mar 1 fell -0.8% w/w to 13.2 million bpd, falling back from the prior week's record high of 13.3 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Mar 8 fell by -2 rigs to 504 rigs, modestly above the 2-year low of 494 rigs posted on Nov 10. The number of U.S. oil rigs has fallen over the past year from the 3-3/4 year high of 627 rigs posted in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
