Oil Futures Ease on Weak Eurozone Industrials Ahead of CPI

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 declined in early trade Wednesday after data from European Union showed industrial production in the single-currency area fell sharply at the end of the third quarter, pressured by supply-chain bottlenecks and a record run in electricity prices, while investors turned cautious ahead of a key reading on U.S. inflation that could provide additional clues on the economy's growth rate in September.

U.S. consumer price index for September will likely show rising energy and food costs have pushed up the headline inflation reading to 0.4% last month, a slightly faster pace than core CPI at 0.3%. Global supply shortages and surging commodity prices are seen lifting inflation across all sectors of the economy.

Ahead of the data's release later Wednesday morning, U.S. dollar weakened 0.26% against a basket of foreign currencies to trade near 94.265, although failed to lift front-month West Texas Intermediate futures in overnight trading. November WTI declined $0.53 from a seven-year high $80.64 per barrel (bbl) settlement on Tuesday, and the international crude benchmark Brent contract for December delivery eased $0.56 to trade just below $83 bbl. NYMEX ULSD November contract fell 1.37 cents to $2.4964 gallon, and front-month RBOB eased 1.4 cents to $2.3689 gallon.

Internationally, industrial production in the euro area slid 1.6% in August after a 1.5% surge in July pressured by supply-chain bottlenecks and record run in electricity prices, according to Eurostat data released early morning Wednesday. Details of the report show that production of capital goods fell 3.9%, durable consumer goods by 3.4%, intermediate goods by 1.5% and nondurable consumer goods by 0.8%, while production of energy rose by 0.5% in the month of August. The readings show supply and capacity constraints are weighing on factory output, so analysts expect more sluggishness to follow in the months ahead.

The International Monetary Fund on Tuesday cut its global growth forecast, citing supply chain challenges and a persistent COVID-19 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 releasing 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.

Separately, Organization of the Petroleum Exporting Countries released their Monthly Oil Market Report this morning estimating global oil demand growth this year slowed to 5.8 million barrels per day (bpd) from 5.96 million bpd. The downward revision is mainly driven by lower-than-expected data for the first three quarters of this year, despite healthy oil demand assumptions for the fourth quarter, which OPEC assumes will be supported by a seasonal uptick in petrochemical and heating fuel demand and the potential switch from natural gas to petroleum products due to high gas prices.

On the supply side, production growth outside of OPEC is revised down by 300,000 bpd from the previous month's assessment to stand at 700,000 bpd this year. The revisions were driven mainly by a downward adjustment in the third quarter due to factors such as production outages in the U.S. Gulf of Mexico caused by Hurricane Ida; maintenance in the Tengiz field in Kazakhstan; and a force majeure in Canada at the Suncor oil sands site.

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

Liubov Georges