Crudes at Fresh Highs, Products Fade on Inflation Worries

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Monday's session mixed, with West Texas Intermediate and Brent again advancing while the RBOB and ULSD contracts faded on concern that renewed inflationary pressure would sap demand.

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, speaking Monday in Calgary at the World Petroleum Congress, defended the kingdom's decision on Sept. 5 to extend a 1 million bpd production cut through the end of 2023 while balancing his comments to not undermine market confidence in demand, according to multiple media reports.

Russia joined Saudi Arabia in holding back oil from the global market earlier this month, with Moscow extending 300,000 bpd in reduced oil exports through the end of December.

Abdulaziz said there is uncertainty over demand in China, and in Europe where the economy is slowing, and the effect on demand caused by the contractionary policy by central banks to lower inflation. The prince hedged his comments regarding reports of slowing Chinese consumption, quoted by Reuters in saying "he jury's still out."

He dismissed the recent outlook by the International Energy Agency released Sept. 13 that OPEC+ cuts will cause a 1.2 million bpd global supply deficit in the fourth quarter, saying supply-demand forecasts are not always reliable.

The prince's early morning comments were followed by the Energy Information Administration's afternoon release of the Drilling Productivity Report forecasting a 40,000-bpd monthly decline in shale oil production in the United States in October. Separately, recent reports note exploration and production companies are drilling shorter laterals amid the high cost of producer inputs such as steel while the workforce remains below its pre-pandemic level.

NYMEX October West Texas Intermediate futures settled up $0.71 at $91.48 bbl, paring an advance to a $92.33 10-month high on the spot continuous chart ahead of the contract's expiration Wednesday afternoon. The expiring contract widened its premium to November delivery in the backwardated market to $0.90 at settlement.

ICE November Brent futures settled Monday's session with a $0.50 gain at $94.43 bbl, with the upside stalling in front of $95 with a $94.95 fresh 10-month high on the spot continuous chart.

While there is growing tightness in global crude oil inventory, traders are assessing the impact to demand from climbing energy prices, and an expected increase in vehicle prices after four days of a targeted strike action by the United Auto Workers against certain factories operated by General Motors, Ford, and Stellantis. The Anderson Economic Group in a widely circulated analysis said a 10-day strike by UAW's 146,000 members could cause a $5.6 billion loss in U.S. gross domestic product and push Michigan's economy into recession.

UAW strike could also lift inflation said the economic consultancy group, as vehicle inventory is further depleted by shuttered factories just as the industry was catching up from the pandemic shutdown that caused global supply chain disruptions. Falling used and new vehicle costs earlier this summer helped to alleviate inflationary pressure. Higher vehicle costs would join climbing energy prices, which were the chief contributor in lifting the key inflation indices at both the consumer and wholesale level in August. The Automobile Association of America reports the U.S. average price for regular gasoline reached a $3.881 gallon 11-month high on Monday, despite the end of the summer gasoline season, and retail diesel fuel averaged nationally at a $4.575 gallon seven-month high.

And while two major refinery turnarounds that began this weekend at Monroe Energy's 185,000-bpd refinery in Trainer, Pennsylvania, and Irving Oil's 320,000 bpd Saint John refinery in New Brunswick, Canada, will crimp regional demand in Central Atlantic and New England states, nationally, the autumn turnaround season will be "one of the lowest seasonal planned refinery downtime in a decade," notes Bank of America's Global Research in a note to clients Monday. Historically low seasonal refinery maintenance and high crack spreads will keep run rates strong with refiners no doubt tilting yield to distillate production. Distillate output has been undermined by tight heavy crude supply availability, a rash of refinery operational issues caused by extreme heat during the summer months, and a low water level at the Panama Canal amid drought that drastically slowed waterborne movements.

NYMEX October ULSD futures settled at a seven-session low $3.2883 gallon, down $0.0951, and October RBOB futures ended trading $0.0102 lower at $2.6979 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne