DTN Oil

WASHINGTON (DTN) -- Following a mixed session Monday triggered by weaker-than- expected economic data in the United States and China, West Texas Intermediates futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied in overnight trade, propelled by assumptions of a rapidly tightening global oil market, with gains in petroleum products demand this winter seen far outpacing growth in global oil production.

Near 8:45 a.m. ET, NYMEX WTI for November delivery, which expires Wednesday afternoon, climbed above $83 per barrel (bbl), gaining $0.53. The December contract traded with $0.82 discount to the soon to expire contract. December Brent futures on ICE pared gains to trade near $84.74 bbl after topping $85 bbl in overnight trade. November RBOB futures on the NYMEX fell 1.39 cents to trade near $1.2423 a gallon, and front-month ULSD futures slipped 0.34 cents to $2.5458 a gallon.

Early morning gains in the oil complex also came on the back of a rapidly weakening U.S. Dollar Index that fell more than 0.38% against basket of foreign currencies after domestic industrial production fell sharply last month. The Federal Reserve on Monday reported industrial output fell 1.3% in September, with Hurricane Ida-caused disruptions along Louisiana Coast responsible for 0.6% of the September decline. Ongoing shortages of semiconductors led to a 7.2% plunge in the production of motor vehicles and parts and caused more than half of the drop off in factory output last month. Weaker industrial data was compounded by rising production expectations on Monday, with crude output from the Permian basin of Texas and New Mexico seen growing by 62,000 bpd to 4.8 million bpd from October to November, the Energy Information Administration said in its drilling productivity report. Total oil output from seven major shale formations is expected to rise 76,000 barrels per day (bpd) to 8.29 million bpd in the month. U.S. crude production increased 100,000 bpd to 11.4 million bpd during the first week of October, according to the most recent data available from the EIA, with the agency last week projecting U.S. output would average 11.3 million bpd this year.

Meanwhile, the number of active oil-directed rigs in the United States increased by 12 in the most recent week, lifting the total rig count to 445, 240 more than during the comparable week a year ago. Last week's increase, while the largest one-week uptick since the first week of April, marked the sixth straight increase. Producers have added 51 rigs since Hurricane Ida forced as many as 16 rigs offline in late August, early September.

WTI and Brent futures returned to the upside in overnight trade on expectations that excess demand from gas-to-oil power switching in the European Union and Asia this winter would far outpace production gains in the U.S. and OPEC+ nations. OPEC, along with Russia-led partners, agreed earlier this month to lift their output by 400,000 bpd in November, maintaining their July agreement of monthly increases of 400,000 bpd through the year as they unwind production cuts put in place in April 2020 in response to the COVID-19 pandemic led crash in world oil demand.

The International Energy Agency estimates that global oil demand would grow by additional 500,000 bpd this winter should energy shortages in Asia and the EU to worsen during the winter months.

Liubov Georges can be reached at: liubov.georges@dtn.com