DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange powered higher early Wednesday, with the international benchmark consolidating gains above $92 barrel (bbl) after International Energy Agency forecast extended production and export cuts from Saudi Arabia and Russia would lead to a significant supply shortfall on the global oil market, resulting in renewed price volatility in the final months of the year.

In its Monthly Oil Market Report released Wednesday morning, the IEA estimated supply cuts from OPEC+ leaders have locked in a 1.2 million barrels-per-day (bpd) shortfall in the fourth quarter 2023.

So far this year, OPEC+ output has fallen by 2 million bpd with overall losses tempered by sharply higher Iranian flows and surging production from non-OPEC+ producers. The United States, Brazil, Guyana estimated to be primary drivers of non-OPEC+ supply growth. Despite production gains outside the OPEC+ coalition and surge in Iranian exports, the market is still forecast to slide into significant deficit by year's end thanks to Saudi and Russian supply curbs.

"The Saudi-Russian alliance is proving a formidable challenge for oil markets. After oil prices traded in relative calm during August, with volatility at multi-year lows, the decision by Saudi Arabia and Russia in early September to extend output cuts of a combined 1.3 million bpd through year-end triggered a price spike in North Sea Dated above $90/ bbl. to a 10-month high." said IEA in its Monthly Oil Market Report.

Similar sentiment was echoed in the monthly report released Tuesday by the U.S. Energy Information Administration that estimates global oil inventories are currently falling at a 600,000-bpd rate, pressured by solid demand growth and ongoing supply curbs from OPEC+. As a result, EIA expects the market price for Brent to remain above $90 bbl through the first quarter 2024 before sliding to $87 bbl over the remaining three quarters of next year. "However, the potential for continued voluntary production cuts creates some upside risk for oil prices," notes EIA in its Short-Term Energy Outlook released Tuesday afternoon.

Wednesday's move higher in the crude complex came despite the American Petroleum Institute survey showing surprise builds occurred in domestic crude and product stocks during the first week of September. Details of the report showed commercial crude oil inventories rose by 1.174 million bbl compared with expectations for a 1.9-million-bbl decline. If confirmed by the EIA data released later Wednesday morning, this would mark the first weekly build in U.S. oil stocks in about a month. At 416.637 million bbl, commercial crude oil inventories currently stand some 4% below the seasonal five-year average. Stocks at the Cushing, Oklahoma tank farm -- the New York Mercantile Exchange delivery point for West Texas Intermediate futures -- dropped 2.417 million bbl. The report further showed gasoline inventories rose 4.21 million bbl in the week ended Sept. 8 versus estimates for a 300,000-bbl decline. Distillate inventory gained 2.592 million, more than six times calls for a 400,000-bbl build.

In financial markets, the U.S. Dollar Index edged higher against a basket of foreign currencies to trade near 104.7 as investors positioned ahead of U.S. inflation data scheduled for 8.30 AM ET release. Consensus of economists expect a mixed reading for the August Consumer Price Index report, with headline CPI seen accelerating on the back of higher gasoline and utility gas prices, while core CPI, which is seen as a better indicator of underlying inflation, is likely to continue on a downward trajectory. On an annualized basis, core CPI is expected to ease to 4.3% in August from July's 4.7%.

"Slowing housing rents will be evident, but it may not be enough to offset as much as the market expects." said investment bank ING Group in a note, adding that "higher gasoline prices will be the main upside driver, but we also see the threat of a rebound in airfares and medical care costs, plus higher insurance prices."

Near 7:45 a.m. EDT, NYMEX October WTI futures advanced $0.52 bbl to $89.35 bbl, and ICE November Brent added $0.50 to $92.56 bbl. NYMEX October RBOB futures declined $0.0141 to trade near $2.7124 gallon and the front-month ULSD contract moved higher by $0.0556 to $3.3833 gallon.

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