Oil futures: Crude off yearly highs as CPI data counters bullish oil outlook
Quantum Commodity Intelligence – Crude oil futures Wednesday were little changed as markets continued to ride the bullish wave, supported by this week’s upbeat outlooks published by OPEC, the IEA and the EIA, before easing after US inflation figures were published.
Front-month Nov23 ICE Brent futures were trading at $92.08/b (1930 GMT), compared to the day's peak of $92.84/b and Tuesday’s settlement of $92.06/b.
At the same time Oct23 NYMEX WTI was trading $88.72/b, versus a high of $89.64/b Tuesday’s settle of $88.84/b.
OPEC maintained its bullish demand outlooks for this year and next, while balances are still expected tighten with a shortfall of more than 3 million bpd by this fourth quarter, with OPEC+ cuts baked in until at least the end of the year.
“That (deficit) would be near on the largest shortfall recorded and in isolation would lead to eye-watering price moves,” noted Edward Bell, Senior Director at NBD.
OPEC also maintained its 2023 demand growth at 2.4 million bpd and the outlook for 2024 growth remained at a "healthy" 2.2 million bpd, according to the latest Monthly Oil Market Report (MOMR).
This was followed by the IEA report Wednesday, as the Paris-based agency calculated global oil inventories had tumbled 76.3 million barrels last month, hitting a 13-month low in August, led by a 50-million-barrel drop in oil held 'on the water'.
"Oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment," said the IEA.
However, the Consumer Price Index (CPI) surged to 3.7% on a yearly basis in August from 3.2% in July, the US Bureau of Labor Statistics (BLS) reported on Wednesday.
The reading came in above the market expectation of 3.6%, with the surge in energy prices likely to add further upwards pressure which could scupper hopes that the Federal Reserve will pause any further rate hikes.
The EIA now expects Brent crude futures to average $93/b in Q4, up from $86/b in its previous forecast, incorporating the impact of Saudi supply cuts on global oil inventories.
However, the US agency sees global oil inventories narrowing by a more modest (vs OPEC) 200,000 bpd in the fourth quarter of 2023 as a result of the cuts, although still significant.
“Following Saudi Arabia’s September 5 announcement to extend its voluntary 1 bpd production cut through the end of this year, we expect that global oil inventories will fall over that period, adding upward pressure to oil prices in the coming months.,” the EIA the said in its short-term energy outlook.
Meanwhile, Brent spreads continued to widen with the Nov23/Dec23 contract at $0.75-$0.80/b, while the sixth-month spread moved above $4.75/b.
Crude prices also eased after this week's EIA data revealed US commercial crude stocks jumped by nearly 4 million barrels last week, while gasoline was up 5.6 million barrels and distillates almost 4 million barrels.
Data released late Tuesday by the American Petroleum Institute showed a 1.17-million-barrel build in commercial crude oil stocks, the first increase in five weeks, although a 2.4 million drop at the key Cushing storage hub helped balance out increases elsewhere.
Gasoline stocks also increased by over 4 million barrels and distillate inventories climbed by 2.6 million barrels, but oil markets initially rode the negative report ahead of the official EIA release.