DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced for the third consecutive month in August fueled by extended production cuts from the OPEC+ alliance, with speculation growing Saudi Arabia will roll over a unilateral curtailment of 1 million bpd into October, further limiting global supply availability and prompting inventory drawdowns.

Commercial oil inventories across Europe, North America and Japan fell by more than 14 million bbl at the start of August, according to estimates from the International Energy Agency, with the sharp downturn driven by a combination of record demand gains and steep production cuts by OPEC+. Crude output from the 23-nation producer bloc plunged to 40.4 million bpd last month -- the lowest since August 2021, when OPEC+ implemented major production cuts at the beginning of the COVID-19 pandemic.

The consensus of analysts surveyed by Bloomberg showed Saudi Arabia is likely to roll over a voluntary 1-million bpd production curb into October, effectively guaranteeing the physical market will remain tight in coming months, while putting a floor under oil prices. Some analysts believe Saudi Arabia has become a prisoner of its own policies, as the kingdom voluntarily reduces output to support prices while other partners within the OPEC+ alliance are actively taking its market share. For instance, Iran is aggressively raising its sanctioned crude oil exports to China, taking advantage of steep discounts against Brent and the Saudi benchmark Arab Light. Tehran reportedly delivered more than 1.5 million bpd of oil to China last month -- the highest daily average export pace since at least 2013. Meanwhile, Russian Energy Minister Alexander Novak signaled Moscow would extend production and export cuts into October, although industry data shows shipments from its Far Eastern ports surged to multi-month highs at the end of August.

Lending further price support, U.S. crude oil inventories, believed to be a reliable gauge of global supply-demand balances, declined for the third straight week through Aug. 25 to the lowest level since late December 2022. At 422.9 million bbl, commercial crude stocks currently sit 3% below the seasonal five-year average. The outsized crude draw was realized despite domestic refiners scaling back run rates to the lowest level in two months to 93.3% of capacity, and producers held output steady at 12.8 million bpd -- the highest in three years. Oil stored at Cushing, Oklahoma, the delivery point for West Texas Intermediate, fell by 1.5 million bbl from the previous week to 29.2 million bbl eight-month low.

At settlement, WTI October futures on NYMEX advanced to $83.63 bbl, up $2. The international crude benchmark Brent contract added $1 to expire at $86.86 bbl, with the next-month Brent contract settling the session near parity at $86.83 bbl. NYMEX ULSD September futures expired at $3.1426 gallon, having added $0.0464 on the session, with the next-month delivery October contract settling the session at $3.1131 gallon. Moving in the opposite direction, NYMEX RBOB September futures eased $0.0428 for a $2.7664 gallon expiration. NYMEX RBOB October futures settled the session with a $0.2005 gallon discount to the expired contract.

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