WTI Futures Spike 3% as Big Draw Highlights Supply Concerns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session with gains between 1.5% and 3%. Gains were propelled by a second consecutive week of sharp inventory drawdowns from U.S. commercial crude and petroleum product stocks amid extended production outages in the Gulf of Mexico, while stronger-than-expected industrial data in the Eurozone and domestically fueled optimism over accelerated demand growth in the fourth quarter.

This year's Atlantic hurricane season has already proved to be more destructive and having a greater impact on global supply balances than in previous years. More evidence of longer-lasting effects on domestic infrastructure from Hurricane Ida than is typical for a hurricane is found in Wednesday's government inventory report from the Energy Information Administration showing domestic petroleum stockpiles plunged more than 10 million barrels (bbl) for the second consecutive week through Sept. 10, with refiners and producers in the region making slow progress in their recovery from disrupted operations. Bureau of Safety and Environmental Enforcement Wednesday afternoon reported 29.52% or 537,000 barrels per day (bpd) of current oil production in the Gulf of Mexico still remains offline post Hurricane Ida, which made landfall on Aug. 29.

Commercial crude oil stockpiles plunged 6.4 million bbl last week compared with calls for a smaller 2.5 million bbl drop. At 417.4 million bbl, domestic crude supplies now stand about 7% below the five-year average. A larger-than-expected crude draw came as refinery run rates nationwide increased just 0.2% compared to calls for a 2.4% jump week-on-week. Gasoline stockpiles fell a less-than-expected 1.9 million bbl with demand for the motor transportation fuel tumbling 7.5% to 8.892 million bpd. Demand for distillate fuels, often seen as a proxy for economic activity, edged higher by 110,000 bpd from the previous week to 3.795 million bpd. Distillate stockpiles declined by 1.7 million bbl to about 13% below the five-year average at 131.9 million bbl.

Interestingly, U.S. industrial production increased 0.4% last month despite widespread shut-ins related to Hurricane Ida that held down an expansion in industrial production by an estimated 0.3%, said Federal Reserve this morning. "Although the hurricane forced plant closures for petrochemicals, plastic resins, and petroleum refining, overall manufacturing output still rose 0.2% and was 1% above the pre-pandemic level," the Fed said.

Mining production fell 0.6%, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico. The output of utilities increased 3.3%, as unseasonably warm weather boosted demand for air conditioning.

Internationally, Eurozone's statistical office Eurostat reported industrial output in the 19 countries sharing the euro rose 1.5% in July compared with calls for 0.5% increase, underscoring a quick rebound in Eurozone manufacturing economy.

Stronger industrial data for the start of the third quarter comes amid a record run in energy prices across the European Union, with low output from wind energy combined with political will to drive up European carbon emission permits sent local gas prices to all-time highs. The benchmark EU power contract, German Cal 2022 baseload power set a new contract record of $115.09 a megawatt hour this week, while its French equivalent was just off a record $130 USD/MWh.

Elevated energy prices across the EU should be supportive for the broader oil complex heading into the fall and winter seasons, with forecasts pointing to higher-than-usual demand for heating fuels.

On the session, NYMEX October West Texas Intermediate contract advanced $2.15 for a $72.61-per-bbl settlement, and Brent crude for November delivery rallied $1.86 to $75.46 per bbl. NYMEX October RBOB futures advanced 3.42 cents to $2.2066 per gallon, and front-month ULSD futures surged 4.40 cents for a $2.2053-per-gallon settlement.

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

Liubov Georges