WASHINGTON (DTN) -- With the U.S. Dollar Index on the retreat and equities trading near record highs, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied in early morning trade Friday, with all contracts heading for a sixth consecutive week of hefty gains spurred by assumptions of widening supply deficit in the fourth quarter, with global fuel demand from gas-to-oil switching in power generation seen outpacing new production growth.
The fourth quarter supply deficit in the global oil market could be as much as 4.5 million barrels per day (bpd) or 5% of the worldwide consumption, according to analysts from the Goldman Sachs.
"This is a big hole to fill even with the production increases that we have penciled in going from now to the end of this year," said Jeff Currie, head of Goldman Sachs's Commodity Research and Global Investment Research Division. "Maybe we can get that deficit whittled down to 2 million bpd, but we will be at a critical operating level of inventory by the year end."
The International Energy Agency estimates total industry stocks held by countries that are part of the Organization of Economic Cooperation and Development fell 28 million barrels (bbl) in August to 2.824 billion bbl, 162 million bbl below the pre-COVID, five-year average. Preliminary September data for the U.S., Europe and Japan show on-land industry stocks fell by an additional 23 million bbl.
Further lending support to the oil complex this week, U.S. Energy Information Administration in its weekly inventory report showed total crude and petroleum product supplies fell by 9.7 million bbl in the week ended Oct. 15, with 5.4 million bbl of that decline realized in gasoline stockpiles alone. Demand for motor gasoline, meanwhile, surged 448,000 from the previous week to 9.634 million bpd.
Distillate inventories, which includes heating oil and distillate fuels, fell by 3.9 million bbl to 125.4 million bbl, EIA reported, and are now about 10% below the five-year average.
Friday's gains came despite lingering concerns over slowdown in global economic growth, with supply bottlenecks and flare-ups in COVID-19 cases continuing to weigh on the post-pandemic recovery. Overnight data from European Union showed business activity across 19-nation bloc slowed sharply in October, dropping most markedly in manufacturing, though also cooling in services. The headline IHS Markit eurozone Composite PMI fell to a six-month low 54.3 in October, down 1.9 points from the previous month, while manufacturing output index slumped to 16-month low 53.2. The decline indicates a further cooling of the rate of expansion from July's 15-year high. Growth slowed especially sharply in Germany, down to the lowest since February, and slipped to the weakest since April in France. The rest of the region recorded the slowest expansion since April. "A sharp slowdown in October means the eurozone starts the fourth quarter with the weakest growth momentum since April. A manufacturing sector beset with supply chain delays saw production growth falter to the lowest since the first lockdowns of last year. The services sector has meanwhile seen some of the summer rebound fade just as resurgent virus case numbers bring renewed concerns, notably in Germany," commented Chris Williamson, Chief Business Economist at IHS Markit.
Near 9:00 a.m. ET, NYMEX West Texas Intermediate futures for December delivery advanced $0.82 to $83.32 bbl, while the December ICE Brent futures gained $0.72 to $85.32 bbl. November RBOB futures on NYMEX surged 2.07 cents to $2.5008 gallon, and front-month ULSD futures rallied 1.39 cents to $2.5612 gallon.
The U.S. dollar, meanwhile, weakened 0.12% against the basket of foreign currencies to trade near 93.640, lending further support for U.S. crude benchmark.
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