U.S. oil prices end lower, but front-month Brent crude marks highest finish of the year

By Myra P. Saefong and William Watts

EIA reports a fifth straight weekly rise in U.S. crude inventories

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 for April delivery CL.1 CLJ24 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, 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 BRNK24, the most actively traded contract, declined by 51 cents, or 0.6%, at $82.15 a barrel on ICE Futures Europe.March gasoline RBH24 shed 3.1% to $2.27 a gallon, while March heating oil HOH24 lost 3.2% to $2.66 a gallon.Natural gas for April delivery NGJ24 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 (UK: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 crude supply gains 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. Tuesday, the American Petroleum Institute reported a crude inventory rise 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 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 have 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."

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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.' Tariq Zahir, Tyche Capital Advisors

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.

-Myra P. Saefong -William Watts

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02-28-24 1525ET

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