DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange were mixed in afternoon trade Thursday. The December West Texas Intermediate contract edged higher on the back of a weaker U.S. dollar index after government data showed the domestic economy slowed markedly in the third quarter, under pressure from disruptions in the global supply chain and a tight labor market.

U.S. gross domestic product slowed to its weakest pace in more than a year during the three months ending in September, the Bureau of Economic Analysis said. The agency estimated a 2% annualized third quarter growth rate -- a sharp decline from the 6.7% pace in the previous period. The U.S. economy's post-pandemic recovery was likely hampered by cooling consumption in the face of a surge in COVID delta-variant infections and the fading impact of government stimulus and extended jobless benefits.

The Federal Reserve's most recent Summary of Economic Projections showed that policy makers have already revised their 2021 full-year growth forecast to 5.9%, down from 7% seen earlier this year.

Inflation in the third quarter spiked well-above the Fed's target range of 2% despite fading base-effects of the pandemic and government stimulus, weakening the case for "transitory" inflation. Unusually strong demand for consumer goods coupled with a tight labor market have driven inflation to a 13-year high of 5.4% in September.

"The risk is clearly now to longer and more-persistent bottlenecks, and thus to higher inflation," said Federal Reserve Chairman Jerome Powell in his congressional testimony earlier this month, adding that supply-chain bottlenecks weren't improving.

U.S. consumers are now paying an average of $3.29 gallon for gasoline, the highest level in seven years, according to the U.S. Energy Information Administration.

The oil complex came under selling pressure on Wednesday amid a one-two punch of potential increase in Iranian crude oil exports after Tehran announced its return to nuclear talks and larger-than-expected build in U.S. commercial crude supplies last week, indicating the market might not be as tight as previously thought.

Commercial crude oil supplies spiked 4.3 million bbl in the week-ended Oct. 22, showed data from U.S. EIA, well-above calls for a 500,000 bbl increase. The larger-than-expected build came on the back of subdued refining activity and sluggish fuel demand.

While the headline crude build was bearish, another large drop in Cushing inventories -- the delivery point for WTI futures -- was drawn down to 27 million bbl, the lowest stock level since October 2018. Total petroleum products increased 4.4 million bbl last week.

Internationally, Iran's chief negotiator, Ali Bagheri-Kani, said Wednesday that Iran will restart nuclear discussions before the end of November, opening the door for potential lifting of U.S. sanctions on its crude exports. Talks between the country and world powers to restore the 2015 Joint Comprehensive Plan of Action had been suspended in June ahead of Iranian presidential elections.

Tehran doesn't disclose its crude export data, but assessments based on shipping data suggest a fall from about 2.8 million bpd in 2018 to as low as 200,000 bpd.

"Iran will return to its pre-sanction crude production level as soon as U.S. sanctions on Iran are lifted," said Iranian oil minister Javad Owji earlier this month.

According to OPEC's latest Monthly Oil Market Report, Iranian oil production averaged 2.503 million bpd in September, some 300,000 bpd higher compared to the first quarter this year but still well-below its peak of 3.8 million bpd seen in February 2018.

At settlement, NYMEX WTI futures for December delivery gained $0.15, to $82.81 bbl, after losing as much as 2.5% in the prior session. The international crude benchmark Brent contract for December delivery settled at $84.34, down $0.26, ahead of expiration Friday afternoon, with the January contract settling at a $0.66 discount to December. NYMEX RBOB November futures eased 1.47 cents, to $2.4350 gallon, with next-month delivery December contact settling at a 7.9 cents discount. NYMEX ULSD November futures edged 0.17 cents higher, to $2.5165 gallon, widening its premium sharply against the December contract to 3.17 cents. November RBOB and ULSD futures expire Friday afternoon.

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