Crude Futures Extend Higher Amid EU, China's Power Crisis

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Following another explosive rally on Monday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange wobbled in early trade Tuesday, with November West Texas Intermediate higher, trading near $81 per barrel (bbl), propelled by concerns over a quickly tightening global oil market as Organization of Petroleum Exporting Countries and Russia-led partners stick with their agreement to gradually roll back production cuts next month, with global stockpiles of coal and natural gas running low before the winter season in the Northern Hemisphere.

Near 7:30 a.m. ET, November WTI futures were $0.41 higher near $80.96 bbl, and the international crude benchmark Brent contract advanced $0.30 to $83.93 bbl. NYMEX November ULSD futures softened 0.31 cents to $2.5119 gallon, and front-month RBOB futures added 0.52 cents to $2.3831 gallon.

WTI settled above $80 bbl on Monday for the first time since November 2014 as a growing power crisis in European Union and Asia boosted demand for gas-to-oil substitution. Bank of America commodity team estimates that in a sustained switching scenario, a global oil market supply deficit this winter could easily exceed 2 million bpd with top line demand pushed up by 1 to 2 million barrels per day (bpd), driven primarily by Asian fuel burning capacity. Despite promised production increases, market participants doubt the capacity of Russia's Gazprom to rapidly increase gas flows into both the EU and China, with the country's gas production in September having reached a decade-high. Furthermore, structural constraints including domestic storage needs and a fire at Gazprom's Urengoy processing facility have further undermined the outlook for increased gas exports.

There are some signs that OPEC+ could increase production faster-than-expected this winter, with private surveys showing that countries that were unable to meet their quotas in the previous months, namely Kazakhstan, Nigeria, and Angola, compensated for supply shortfalls in September. According to private surveys, 23-nation coalition raised crude production by 650,000 bpd in September to 36.51 million bpd, driven by a rebound in Nigeria's output after resumption of loading activities at the Forcados terminal on Sept. 8. The Forcados terminal's export outlet was under force majeure in August, limiting supply. Even so, analysts estimate Nigeria is pumping almost 100,000 bpd less than its OPEC target as underinvestment restrains output.

In broader markets, U.S. Dollar Index slipped against a basket of foreign currencies to trade near 94.315 and equity futures edged higher ahead of Tuesday morning's release of Department of Labor's report on job openings, with consensus calling for employers to have had at least 11 million open positions in August, up from a record-high 10.934 million. Despite consistent demand for labor, U.S. economy created a much lesser-than-expected 194,000 new jobs in September -- the lowest monthly job growth rate since January. Interestingly, most of the job losses took place in the government and public sectors, mainly in schools that might be linked to vaccine mandates and the Delta surge of coronavirus infections.

According to Goldman Sachs analysts, labor shortages, production bottlenecks and ongoing COVID-19 pandemic will shave 0.2% off U.S. growth this year for a 5.6% growth rate, with the investment bank projecting the U.S. economy to expand by 4% in 2022.

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

Liubov Georges