DTN Oil

WASHINGTON (DTN) -- Oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied for the second consecutive session Tuesday following Monday's decision by the Organization of the Petroleum Exporting Countries and Russia-led partners to maintain a policy of measured monthly production increases, lifting the U.S. crude benchmark to a seven-year high and the international crude benchmark to a three-year high settlement amid signs of accelerated demand growth this winter from gas-to-oil power generation in the European Union and China.

Oil futures were also given a boost from a stronger-than-expected reading on U.S. service activity in September -- the biggest component of the country's economic growth -- which rose by 1.2% from the previous month to 61.9, according to the data released Tuesday morning by the Institute of Supply Management. The reading came firmly above the 50-point mark that separates growth from contraction. Further details of the report show 17 out of 18 service industries reported expansion despite ongoing challenges with labor, supply chains and input costs. The better-than-expected performance in services also follows a solid reading for domestic manufacturing industries, with goods-producing industries recording a 1.2% advance last month to 61.1%. Demand appears to far outweigh supply for goods and services in an economy that is overwise slowing.

The Federal Reserve of Atlanta GDPNow model estimates economic growth in the third quarter slowed to 1.3% from a 6.5% growth rate for the June-September period.

"Constrained supply of many key product groups and inflationary pressures in most areas of the business keep driving costs higher. Inconsistent COVID-19 restrictions throughout the country are creating unstable business conditions that are concerning. However, business continues to be strong overall," commented a business in wholesale trade.

Tuesday afternoon, oil traders also positioned ahead of the weekly release of inventory data from the American Petroleum Institute followed by the official report from the U.S. Energy Information Administration on Wednesday. Analysts estimate U.S. commercial crude oil inventories remained unchanged from the previous week, although estimates ranged from a decrease of 3.1 million barrels (bbl) to an increase of 2.5 million bbl.

Gasoline stockpiles are expected to have fallen by 200,000 bbl in the week ended Oct. 1, while stocks of distillates are seen to have been drawn down 1.1 million bbl. Refinery use likely rose 0.3% to 88.4% of capacity.

On the session, NYMEX November West Texas Intermediate futures jumped $1.31 bbl to settle a tad below $79 bbl at $78.93, and ICE December Brent contract rallied to $82.56 bbl, adding $1.30 bbl in afternoon trade. NYMEX November ULSD futures advanced 5.70 cents or 2.7% to $2.4936 gallon and front-month RBOB futures surged 4.94 cents to $2.3579 gallon.

Tuesday's higher settlements were once again underpinned by the decision from OPEC+ coalition not to raise production above 400,000 barrels per day (bpd) in November despite a deepening energy crisis in Europe and Asia that could dent growth rates in those regions. Faced with record-high gas prices and fuel shortages, Eurozone industrial growth slowed sharply in September to the lowest reading since the lifting of COVID-19 restrictions. In China, widespread power outages have already prompted government officials to roll out various electricity rationing measures to conserve fuel ahead of the peak winter demand season.

Saudi Arabia's national oil company Aramco estimates that gas-to-oil switching in global power generation this winter will lead to 500,000 bpd in access demand for petroleum products this winter. Economists at Goldman Sachs see excess demand this winter for gas-to-oil switching at 645,000 bpd.

"The agreement will allow us to continue to normalize the market situation," Russian Deputy Prime Minister Alexander Novak said in a speech at the meeting, part of which was broadcast by Rossiya 24 state TV channel. OPEC+ ministers will meet again on Nov. 4 to review market conditions.

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