Brent Tops $79 on Global Supply Outages, EU Fuel Shortages

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

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rose for the fifth consecutive session on Monday, with both benchmarks trading as much as 1.5% higher amid reports of acute fuel and power shortages in major economies of the European Union and China, while some producers in Organization of the Petroleum Exporting Countries and Russia-led partners, known as OPEC+, have struggled to raise oil production in recent months, stoking concerns over tighter-than-expected supply fundamentals in the fourth quarter.

Near 7:30 a.m. ET, NYMEX November West Texas Intermediate futures topped $75 per barrel (bbl), up $1.03 in overnight trading, and ICE November Brent futures advanced $1.11 from Friday's 35-month high $79.20 bbl settlement. NYMEX October ULSD futures surged 3.24 cents to trade near $2.2995 gallon 36-month spot high, and front-month RBOB futures gained 1.50 cents to $2.2025 gallon.

Goldman Sachs Monday morning revised higher its Brent crude forecast to $90 bbl for the fourth quarter, up $10 bbl from the previous outlook, amid production outages in the U.S. Gulf of Mexico from recent hurricanes and delayed maintenance at major oilfields in some OPEC+ member countries that have fueled concern over a tightening global oil market.

"While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts," Goldman said in a Sunday note to clients.

In addition to Hurricane Ida's disruption to the Gulf of Mexico oil production this month, several OPEC+ members are now struggling to raise output, producing well below their agreed to quotas under a joint production agreement. OPEC+ compliance with oil production cuts rose to 116% in August, up from 109% in the previous month even as the group agreed to boost collective supplies by 400,000 barrels per day (bpd) in August and September.

Delayed maintenance work and underinvestment in new production capacity reportedly curbed output in Nigeria, Kazakhstan, and Angola last month, with all three members of the coalition pumping at least 250,000 bpd below their August targets.

In Kazakhstan, oil output from the major oil field in Kashagan dropped by 45% to 209,812 bpd in August versus 350,000 bpd in expected output amid major maintenance work, while the country's major oil producer Chevron-led Tengizchevroil delayed its $45.2 billion expansion project at Tengiz oilfield due to pandemic restrictions and COVID-19 infections among workers.

Elsewhere, Nigeria and Angola -- Africa's two largest oil producers -- have underproduced by an average of 276,000 bpd last month out of their combined OPEC quota of 2.83 million bpd according to analysts.

In June, Angola's oil minister, Diamantino Azevedo, lowered its targeted oil output for 2021 to 1.19 million bpd from 1.33 million bpd, citing in a statement production declines at mature fields, drilling delays due to COVID-19, and "technical and financial challenges" in deep-water oil exploration.

Unexpected production outages across the globe coincide with severe power shortages in the European Union and China that are likely to further boost demand for oil-fired power generation this winter. China's growing electricity shortages have halted production at numerous factories last week, including many supplying Apple and Tesla, while some shops in the northeast regions operated by candlelight.

In Europe, Russia's Gazprom has been reducing its gas supplies to the 19-nation economic bloc due to reported maintenance issues and inadequate gas inventories domestically. Gazprom's storage sites in Russia are currently just 16% filled, depleted well beyond the normal 35% to 40% level, according to analysts. High domestic demand during a bitter winter left storage sites depleted, while summer heatwaves boosted gas use for power stations and several other major Russian producers curtailed supply. The gas giant plans to finish filling its Russian storage sites by Nov. 1, and "after this point, any excess volumes could be available for the European market," meaning the near-term price outlook for Europe remains bullish.

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

Brian Milne