DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate and ULSD futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session with gains between 1.5% and 4.5%. The gains came amid a one-two punch of a sharp drop in U.S. commercial crude oil inventories along with a record surge in fuel exports from the U.S. Gulf Coast while soaring natural gas and power prices across the European Union fueled by the anticipated shutdown of the key pipeline from Russia lent further support to the complex.

The Energy Information Administration inventory report released mid-morning Wednesday was mixed-to-bearish for the oil complex, showing commercial crude-oil inventories declined by a larger-than-expected 3.3 million barrels (bbl) for the third week of August, not due to strong demand domestically but rather an increased pull on U.S. barrels from European and Asian buyers ahead of the winter months. Details of the report revealed that over past two weeks U.S. oil exports climbed to 4.5 million barrels per day (bpd), compared with an average 3 million bpd a year ago. On a four-week average basis, U.S. exports were around 1 million bpd more compared with the same period last year. Industry analysts expect shipments will average above 4 million bpd over the next few months and into next year, which should continue to support the recovery of the U.S. oil patch.

Surprisingly, domestic operators scaled back production by 100,000 bpd last week to 12 million bpd, which is still 1.1 million below the pre-pandemic high of early March 2020.

In the gasoline complex, however, EIA's data showed a sharp decline in gasoline demand of 914,000 bpd for an average pace of consumption at 8.434 million bpd, bringing the four-week average to just 8.9 million bpd -- a full 7% below last year's level. The incoming data poured some cold water on hopes that falling prices at the gas pump might incentivize some Americans to take more road trips before summer ends.

The American Automobile Association found that almost two-thirds of U.S. adults have changed their driving habits or lifestyle since March, with the top two changes used to offset high gas prices are driving less and combining errands. The bearish development left gasoline inventories little changed from the previous week at 215.6 million bbl compared with analyst expectations for inventories to have decreased by 1.1 million bbl.

In Europe, gas and power prices set new records this week amid panic over the availability of Russian supplies ahead of the winter months. Russia's Gazprom said it would stop its key Nord Stream gas pipeline for three days of repairs on Aug. 31, again raising concerns it won't return after the work. The temporary closure wasn't previously announced and comes just weeks after the 760-mile Nord Stream pipeline, which connects Russia's prolific Siberian gas fields with Germany under the Baltic Sea, was shut for 10 days of annual maintenance in July. After the work ended, Gazprom restored gas flow, but only to 40% of the pipeline's capacity. It later cut flows to 20% of capacity, saying it couldn't maintain normal flow without a turbine that the German government claims Russia is refusing to take. At this point, the Nord Stream pipeline operates with a single functioning turbine at the Portovaya compressor station. Markets are now more skeptical than ever that Russia will maintain its European gas flows this winter, which is pushing prices higher with intermittent interruptions seen before completely cutting off exports.

EU gas storage is now around 76% full, broadly in line with their historical average for this time of year. Germany, at around 78%, has recently filled storage faster than anticipated. However, even full storage might not be enough to see the region through the winter if Russian flows stop completely.

At settlement, WTI October futures added $1.15 to $94.89 per bbl, and October Brent rallied above $101 per bbl, up $1 per bbl from Tuesday's close. NYMEX September RBOB futures declined 13.23 cents to $2.8007 per gallon, while the September ULSD contract advanced 17.13 cents for a $4.0132-per-gallon settlement.

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

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