Oil futures: Brent tops $77/b, supported by US stock draw, supply fears

23 Sep 2021

Quantum Commodity Intelligence - Crude oil futures continued to strengthen Thursday following 2% gains in the prior session when US crude inventories were reported falling again and the Fed gave advanced notice of its plans to taper asset buying, while high natural gas prices continued to support Q4 oil demand forecasts.

Front-month November ICE Brent futures were trading at $77.06/barrel (1530 GMT), compared to Wednesday’s settle of $76.19/b.

At the same time, November NYMEX WTI was trading $73.30/b, versus Wednesday’s settle of $72.23/b.

Both markets were trading at around intraday highs.

According to EIA data Wednesday, commercial crude stocks in the United States fell for the seventh consecutive week to a near three-year low, dropping by 3.48 million barrels to 414 million barrels in the week ending September 17.

Gasoline stocks rebounded 3.5 million barrels to 221.6 million barrels.

“US Gulf Coast refiners are continuing to ramp up to pre-Hurricane Ida levels, with runs averaging 7.7 mmb/d last week,” said energy consultants FGE, although noted that Shell’s 250 kb/d Norco refinery and P66’s 269 kb/d Alliance plant are still offline and will likely remain so for several more weeks.

Around 295,000 bpd, or 16%, of Gulf crude oil production, was still shut in Wednesday, according to the US Bureau of Safety and Environmental Enforcement (BSEE), while 25% of natural gas capacity (541 million cubic feet) is offline.

Meanwhile, operational problems at Canada's Syncrude further tightened supplies for the North American market.

OPEC is widely expected to continue with the current policy of 400,000 bpd month increases when it meets early October, but there are concerns that some members may struggle to meet production quotas.

“It remains to be seen if OPEC will actually manage to raise output to the level it is planning, as delayed maintenance in some member states could hamper their increase, while other members are not allowed to pump more due to separate allowed quotas,” said Rystad Energy in its latest client note.

At the macro level, the Fed's indication that it plans to reduce QE supported a bullish outlook for oil consumption in the US, while risk appetite was returning amid a share price recovery for embattled China property developer Evergrande.

"The US Federal Reserve...gave advance notice of its tapering intention thereby confirming its economic optimism, which ultimately points to robust US oil demand," said Commerzbank in an investor note.

Share prices in Evergrande rebounded strongly Thursday, trading around 30% higher in Hong Kong, easing fears over the potential collapse of the indebted property giant and improving the overall investment climate.