DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the International Exchange advanced for the ninth and eighth consecutive sessions, respectively, on Wednesday following Tuesday's announcement of extended production and export cuts from OPEC+ leaders that combines with expectations for solid demand growth in the fourth quarter that is seen continuing to prompt global inventory drawdowns.

Front-month Brent held above $90 per barrel (bbl) for the second session this week after Saudi Arabia prolonged its unilateral 1 million barrels per day (bpd) oil production curtailment for another three months. The move is seen as significantly tightening the global oil market later this year. Saudi Aramco on Wednesday doubled down on the strategy of defending oil prices by raising its official selling price for October for benchmark Light Arab crude to two key markets -- U.S. and Asia. For Asian refiners, Aramco lifted OSP by 10 cents against the Oman-Dubai average, while hiking selling prices to U.S. refiners by 20 cents.

U.S. commercial crude oil stocks declined for all but one of the past seven weeks, falling by more than 40 million bbl since mid-July -- the month Saudi Arabia began a voluntary reduction of 1 million bpd in conjunction with OPEC+ cuts. U.S. commercial crude stockpiles currently stand at their lowest level since December 2022 and some 3% below the seasonal five-year average.

Analysts surveyed by the Wall Street Journal estimate crude stockpiles fell again last week, with an average consensus calling for a 2.1 million bbl drawdown. The inventory report from the U.S. Energy Information Administration is scheduled for release at 11 a.m. ET Thursday, a day later than normal due to Monday's Labor Day holiday.

Gasoline inventories, meanwhile, are expected to have fallen by 1.2 million bbl from the previous week, while stocks of distillates are seen decreasing by 200,000 bbl. Refinery use likely climbed 0.1% from the previous week to 93.4% of capacity.

For major oil-consuming nations, extended supply cuts by the Saudis and Russians clearly risk accelerating inflationary pressures that only recently started to ease from multidecade highs. A renewed inflationary spike would squeeze consumers and businesses just as central banks are seen near the end of a monetary tightening cycle.

In financial markets, the U.S. dollar clawed back earlier losses to settle at the highest settlement since early March 104.821 on Wednesday after a key gauge on the U.S. service sector of the economy showed business activity unexpectedly accelerated in August, expanding for the eighth straight month. The report from the Institute of Supply Management revealed that 13 out of 18 service industries reported growth, and subindexes of employment and input prices came in well above the prior month's levels.

"Warnings of a possible recession in 2024 are not being taken seriously by top management. The same experts warned that the country would be in a recession by now. Our general feeling is that the (Federal Reserve's) strategy for taming inflation and building a soft landing for the economy is working better than expected," said a representative from Public Administration.

Similar sentiment was echoed in the Beige Book released by the Federal Reserve Wednesday afternoon indicating the overall economy slowed, putting downward pressure on prices without excessive job losses.

"Most districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors," reports the Beige Book, adding businesses "renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term."

At settlement, WTI October futures on NYMEX advanced $0.85 to climb to a fresh 10-month high settlement at $87.54 bbl and Brent for November delivery rallied to $90.60 bbl, up $0.56. NYMEX RBOB October futures added $0.0204 to $2.6014 per gallon. Moving in the opposite direction, NYMEX ULSD October futures retreaded $0.0269 to $3.1927 per gallon.

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