Oil Prices Back to 10-Month High After EIA Warning
Oil prices are back to a 10-month high on Thursday as concerns over tightening oil supply gained ground over heightened demand fears caused by a rise in US crude stockpiles.
Oil prices remain well supported by expectations of a tighter market, ING commodities strategists Warren Patterson and Ewa Manthey said in a note.
In their view, sentiment in the market clearly remains constructive after the International Energy Agency (IEA) in its latest monthly oil market report warned about the market tightening significantly over the remainder of the year due to ongoing OPEC+ supply cuts.
International benchmark crude Brent traded at $92.48 per barrel, a 0.65% gain from the closing price of $91.88 a barrel in the previous trading session on Wednesday. The American benchmark West Texas Intermediate (WTI) traded at the same time at $89.14 per barrel, up 0.70% from the previous session’s close of $88.52 per barrel.
Investors awaited monthly US inflation data and crude oil stocks on Wednesday to get a sense of demand in the world’s top crude oil-consuming country. Data from the Bureau of Labour Statistics revealed the annual inflation rate in the US reached 3.7% in August, marking growth for a second consecutive month.
Food prices rose by 4.3% in August on an annual basis, while energy items posted a 3.6% decline, the official figures showed. According to analysts, the bearish data, with inflation above expectations, may pave the way for another interest rate hike at the Fed’s November or December meetings.
The demand outlook became even more ambiguous as the Energy Information Administration (EIA) reported that US commercial crude oil stockpiles climbed by 4 million barrels last week, exceeding the American Petroleum Institute’s forecast of 1.2 million barrels.
Gasoline inventories also increased by 5.6 million barrels to 220.3 million barrels over the same period.
Despite this, crude oil prices rebounded to 10-month highs as investors remained concerned about tightening global oil supplies, particularly after the US Energy Information Administration (EIA) warned of an expected fall in global oil stockpiles.
The agency said global oil stocks are likely to shrink as a result of Saudi Arabia’s decision to prolong its voluntary 1 million barrel-per-day (bpd) production cut through the end of this year, putting upward pressure on oil prices.
‘Even if the two producers were to relax their curbs in early 2024, it will leave oil inventories severely depleted,’ according to Daniel Hynes, a commodity strategist at Australia and New Zealand Banking Group.
The IEA estimates that global oil inventories fell by 76.3MMbbls over August, taking inventories to their lowest levels in 13 months. Meanwhile, Russian oil exports fell by 150Mbbls/d MoM to 7.2MMbbls/d in August.
As for demand, the IEA still believes that it will grow by 2.2MMbbls/d this year, driven by China. However, demand growth in 2024 is expected to slow to around 1MMbbls/d with expectations of weaker GDP growth.
“We mentioned yesterday that higher oil prices will likely lead to increased political pressure. And it appears as though the US Department of Energy has already been in touch with domestic oil producers and refiners with regard to inventories and the supply outlook”, ING commodities strategists said.
Weekly US inventory numbers from the IEA were fairly bearish, with inventory increases in crude oil and refined products. Commercial crude oil inventories increased by 3.96MMbbls over the week, driven by stronger imports and a 1.84MMbbls/d decline in crude exports.
Slightly stronger refinery runs over the week along with weaker gasoline demand saw gasoline inventories increase by 5.56MMbbls – the largest weekly increase since July last year. Distillate fuel oil inventories grew by 3.93MMbbls. However, distillate stocks are still around 17MMbbls below the 5-year average as we head closer towards the winter months.
European gas prices saw further strength yesterday with Dutch TTF rallying a little more than 6%. The main catalyst for the move appears to be yet another extension to maintenance at the Troll field in Norway. Capacity is now expected to only restart from 15 September.
In addition to this, strike action at the Gorgon and Wheatstone LNG facilities in Australia is set to escalate from today, putting around 6% of global supply at risk. Chevron is trying to bring an end to strike action by taking the matter to a tribunal with a hearing scheduled for 22 September.
“If these supply matters were not enough, there are also some LNG disruptions coming from the US. The Freeport LNG plant has seen its feed gas intake fall significantly over the last several days. Intake has fallen from a usual 2bcf/day to 334mcf/day according to LSEG data”, analysts said.
ING believes strongly that this will obviously feed through to reduced LNG supply and would be more of a direct concern for the European market than the Australian strikes. #Oil Backs to 10-Month High After EIA Warning Naira Devaluation Deepens Economic Crisis in Nigeria