WTI, Brent Futures Mixed After Rally; USD Gains Cap Upside

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange were mixed in market-on-close trade Tuesday, with November West Texas Intermediate consolidating above $80 barrel (bbl) amid concern over fuel shortages in the European Union and Asia that are boosting the outlook for oil demand in the Northern Hemisphere this winter and a strengthening U.S. Dollar Index that capped the upside.

Oil futures moved mixed Tuesday with WTI finishing the session near unchanged at a seven-year high $80.64 bbl and international crude benchmark slipped $0.23 to $83.42 bbl. NYMEX ULSD November contract declined 0.5 cents for a $2.5100 gallon settlement, and front-month RBOB gained 0.5 cents to $2.3829 gallon.

Oil futures along with stocks on Wall Street pared earlier gains after the Department of Labor reported 10.4 million new positions were opened in August, with hires decreasing to 6.3 million while total separations were little changed at 6 million. Economists were expecting a higher reading of 11.03 million. The unexpected reading follows lower-than-expected job growth in September at 194,000 -- the lowest monthly job creation rates this year.

The three major U.S. stock indexes closed modestly lower for a third consecutive session Tuesday ahead of a key inflation reading and the kickoff to the third-quarter earnings season.

The consumer price index for September is seen to have increased 0.3% from month prior while up 5.3% year over year, according to analysts. The Bureau of Labor Statistics will release the inflation indicator Wednesday morning.

The Federal Open Market Committee on Wednesday is also set to release minutes from their September meeting. Investors will comb through the minutes for any potential clues regarding the central bank's plans to pull back quantitative easing policy.

The International Monetary Fund on Tuesday cut its global growth forecast, citing supply chain challenges and a persistent COVID pandemic in parts of the global economy.

"We're seeing major supply disruptions around the world that are also feeding inflationary pressures, which are quite high and financial risk taking also is increasing, which poses an additional risk to the outlook," IMF economist Gita Gopinath said in a release of the assessment.

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.

The IMF said central banks like the Federal Reserve should be prepared to tighten monetary policy if inflation runs too hot.

Fanning those concerns are projections for higher-than-expected demand for petroleum fuels as a result of gas-to-oil switching in European Union and Asia, with a commodity research team at Bank of America estimating in a sustained switching scenario, a global oil market supply deficit this winter could easily exceed 2 million barrels per day (bpd) with top line demand pushed up by 1 million to 2 million bpd, driven primarily by Asian fuel burning.

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 countries that were unable to meet their quotas in the previous months, namely Kazakhstan, Nigeria, and Angola, compensated for the 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.

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

Liubov Georges