Crude oil tests top of recent rage amid tightened supply outlooks

Crude oil futures settled near 11-month highs Feb. 1 as tightened supply outlooks overshadowed pandemic-related demand concerns.

NYMEX March WTI settled $1.35 higher at $53.55/b and ICE April Brent climbed $1.41 to $56.45/b.

Feb. 1 marked the start of Saudi Arabia's 1 million b/d voluntary crude production cuts, setting the stage for a much tighter supply outlook in the coming months. The start of the Saudi production cuts comes amid strong compliance from OPEC+ as a whole, underscoring bullish market sentiment and overshadowing near-term risks to the demand outlooks posed by lockdowns in Europe and Asia.

"We are probably going to continue to see the current virus concerns sort of weigh on the medium-term demand outlook, but overall markets are pretty much content that there will not be a big wave of oversupply concerns and that is going to be very positive for crude prices," OANDA senior market analyst Edward Moya said.

Front-month WTI settled just 2 cents shy of its most recent 11-month high seen Jan. 14, but Brent futures remained well within their recent range amid global demand growth concerns.

Chinese manufacturing purchasing managers index data for January was weaker month on month and below what the market was expecting, raising questions about the country's oil demand in coming weeks.

Recent pandemic flare-ups have prompted Chinese officials to discourage citizens from traveling during the upcoming Lunar New Year holiday but, despite these efforts, the negative impact on transportation fuel demand is likely to be limited compared with the same period of 2020.

S&P Global Platts Analytics projected China's gasoline demand at about 3.4 million b/d in January through February, up 20% year on year but 5.5% below the same period of 2019.

"It is very unlikely to repeat the demand damages in last year. There is not much room for downward adjustment of the demand forecast for January and February this year," a London-based analyst said.

ULSD climbs as polar vortex takes aim at Midwest

Diesel futures received an extra boost from forecasts for the polar vortex to bring record cold weather to the northern US in the coming days.

NYMEX March ULSD settled 4.85 cents higher at $1.6496/gal, up nearly 3% from the session prior, while March RBOB climbed 3.74 cents to settle at $1.5901/b.

Latest forecast models show large swaths of the upper Midwest, including Chicago and Detroit, are expected to see unseasonably cold weather, with temperatures that will fall below zero next week.

Platts ULSD Chicago Buckeye was assessed at a 75 cent/gal discount to NYMEX ULSD Feb. 1, steady with the prior session.

US distillate inventory draws are expected to extend during the week ended Jan. 29, analysts surveyed by Platts said, with stocks likely falling 1.3 million barrels to 161.5 million barrels. The counter-seasonal drawdown would narrow the surplus to the five-year average to 7%, the lowest since the week ended Jan. 6.