DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended gains into early trading Wednesday after an inventory report from the American Petroleum Institute showed a sizable drawdown in U.S. commercial crude oil inventories during the third week of August, likely underpinned by strong demand for U.S. crude oil exports as the global market transitions to the winter months, while bullish rhetoric from some OPEC+ members suggesting a production cut further bolstered the complex.

U.S. commercial crude oil inventories fell 5.632 million barrels (bbl) last week, well above a 500,000-bbl decrease expected by the market, showed data from API late Tuesday afternoon. This follows another supersized 7.056-million-bbl drawdown reported for the second week of August that coincided with a record pace of crude exports from the U.S. Gulf Coast. Industry data suggests European buyers are taking increasingly larger volumes of U.S. crude ahead of the fall/winter months that should mark the beginning of an oil embargo on Russian seaborne oil exports. Bullish inventory data in the United States will likely continue to support the oil complex into the final days of August.

The industry data also showed gasoline stocks gained 268,000 bbl in the reviewed week, contrary to calls for a 1.1 million bbl draw, while distillate inventories increased by 1.051 million bbl compared with an anticipated build of 800,000 bbl.

Internationally, crude flows from Kazakhstan's Caspian Pipeline Consortium that runs through Russia have once again been interrupted due to reported damage at the Black Sea terminal, shutting down nearly 1.2 million barrels per day (bpd) in crude oil exports from the Central Asian producer. The pipeline moves over two-thirds of all Kazakhstan oil exports along with crude from Russian fields, including those in the Caspian region. The extent of damage and state of repair remain unclear.

This is not the first time CPC pipeline was shut down this summer. In July, the pipeline was closed by a Russian court decision linked to an oil spill that occurred last year. Later, an appeals court in Russia overturned this decision, granting the restart of the pipeline.

Some have speculated that the interruption is political in its nature, aimed at pressuring Kazakh President Kassym Tokayaev to support Russia's invasion of Ukraine that so far, he has been critical of. The shutdown spells more trouble for the European Union who is the major importer of Kazakh crude as the EU struggles to find alternatives to Russian oil barrels.

Against this backdrop, Saudi-led Organization of the Petroleum Exporting Countries and ten producers outside of the cartel are considering a production cut when they meet next in September in a move that would further tighten the market this winter.

"OPEC+ has the commitment, the flexibility, and the means...to deal with such challenges and provide guidance including cutting production at any time and in different forms," Saudi Energy Minister Prince Abdelaziz bin Salman said late Monday.

He further described oil markets as "in a state of schizophrenia," and said Saudi Arabia would soon begin working on a new OPEC+ agreement beyond 2022.

Some have speculated the Saudi comments have less to do with fears of a recession and the resulting lost demand than the recent breakthrough in Iran's nuclear talks that might lead to the lifting of sanctions on as much as 1 million bpd in crude oil exports.

Media airwaves were hit with reports on Tuesday suggesting Tehran dropped another key demand related to nuclear inspections of its undeclared nuclear material as negotiations over reviving the Joint Comprehensive Plan of Action continued. Iran last week submitted "its response" that has been called "reasonable" by the EU negotiators. U.S. State Department acknowledged that Washington is "encouraged by the fact that Iran appears to have dropped some of its nonstarter demands," including a demand that Washington delist the Islamic Revolutionary Guard Corps as a foreign terrorist organization but said "there are still some outstanding issues that must be resolved."

Near 7:30 a.m. EDT, WTI October futures added $0.73 to $94.46 bbl, and October Brent rallied above $101 bbl, up $0.85. NYMEX September RBOB futures declined 0.94 cents to $2.9236 gallon, while the September ULSD contract advanced 2.56 cents to $3.8675 gallon.

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