DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session higher after International Energy Agency lifted its global demand projections for this year and next by 500,000 bpd to 99.7 million bpd and 101.8 million bpd, respectively, citing growing oil consumption in European Union as high natural gas prices force power generators to switch to oil for electricity production.

"Natural gas and electricity prices have soared to new record highs, incentivizing gas-to-oil switching in some countries," said Paris-based energy watchdog in its August Oil Market Report released this morning.

Gas-to-oil switching in power generation is likely to offset weakness in other sectors triggered by economic slowdown and a partial shutdown of industrial capacities across the EU.

Similar sentiment was echoed in the Monthly Oil Market Report released this morning by OPEC economists that pointed to a trend of burning more crude in European power generation as one of the reasons for demand to remain strong this year. Despite this expectation, OPEC revised its demand projections downward from the previous month's assessment but still shows healthy growth of 3.1 million bpd this year and 2.7 million bpd in 2023. OPEC expects total oil demand to average around 100 million bpd in 2022. For 2023, the forecast for world oil demand growth remains unchanged at 2.7 million bpd, with total oil demand averaging 102.7 million bpd.

On the supply side, OPEC estimates the 13-member cartel increased crude production by 162,000 bpd last month to 28.84 million bpd, with Saudi Arabia leading production gains with 136,000 bpd. Kingdom's direct communication indicated a July production gain of 169,000 bpd and output at 10.815 million bpd. The Saudi's quota for July was 10.833 million bpd.

Kuwait and United Arab Emirates crude oil production increased 48,000 bpd for both countries to 2.773 million bpd and 3.13 million bpd, respectively. Both countries produced at their July production quotas.

Iraq crude production increased 24,000 bpd to 4.49 million bpd in July according to secondary sources, while the country reported a 69,000-bpd monthly increase and output at 4.584 million bpd, which was their quota for last month.

Only three of the 10 OPEC countries met their July production quotas, with the biggest laggard Nigeria, where July crude output at 1.17 million bpd was little changed on the month while 629,000 bpd or 35% below a 1.799 million bpd quota. Angola, with output slipping 23,000 bpd in July to 1.161 million bpd, was 341,000 bpd or 23% less than quota.

The three countries that are not part of the OPEC+ accord -- Iran, Libya, and Venezuela, all saw production declines in July. Iranian crude production slipped 16,000 bpd to 2.553 million bpd, Libyan output declined 23,000 bpd to 621,000 bpd, and Venezuelan production was down 45,000 bpd to 665,000 bpd.

In financial markets, the U.S. dollar index suffered steep losses for a second straight session Thursday after a key measure of U.S. producer prices unexpectedly fell in July for the first time in more than two years. U.S. Bureau of Labor Statistics reported on Thursday the producer price index for final demand decreased 0.5% from a month earlier while still rising 9.8% from a year ago. Excluding the volatile food and energy, the so-called core PPI rose 0.2% from June and 7.6% from a year earlier. Both the overall and core figures were softer than forecast. The data suggests wholesale inflation is beginning to ease, which could ultimately temper the pace of consumer price growth in coming months.

PPI follows a softer-than-expected consumer price index that showed no change last month after spiking 1.3% in June, bringing the annualized rate of inflation from a 41-year high 9.1% to 8.7%, according to the BLS. A decline in gasoline prices, down 7.7% in July, offset increases in food and shelter costs, leading headline inflation to run at a cooler pace than markets had anticipated. Core prices, which exclude volatile food and energy categories, increased 0.3% from June, but are still at a slower pace than 0.7% rise in June from May.

At settlement, nearby-month delivery West Texas Intermediate advanced $2.41 to $94.34 bbl, and the ICE Brent contract for October delivery gained $2.20 to $99.60 bbl before topping $100 bbl for the first time in a week. NYMEX September RBOB finished the session little changed at $3.0715 gallon, while the NYMEX September ULSD contract surged 7.37 cents to $3.4840 gallon.

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