DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange powered higher on Thursday, lifting the spot-month West Texas Intermediate contract above $90 per barrel (bbl) for the first time since November 2022. The gains came as traders look to signs of supply tightness across key markets in Asia and North America underpinned by solid demand gains during the summer and extended production cuts from OPEC+ leaders.

Tightness in the global oil market is mainly driven by crude production cuts by Saudi Arabia during the third quarter that were extended by the kingdom on Sept. 5 through the end of the year, forcing refineries in Asia and elsewhere to look for alternative supplies, according to reports. Tanker-tracking data shows differentials for Middle East cargoes have surged in recent weeks as buyers in China grab available supplies. What's more, Russia's commitment to prolong an ongoing 300,000-barrel-per-day (bpd) reduction in crude oil exports have further pressured buyers in the region. Over 80% of Russian crude and petroleum products exports have been redirected from Europe to Asian buyers following Vladimir Putin's invasion of Ukraine in February 2022, and subsequent sanctions on Russian oil exports.

"The Saudi-Russian alliance is proving a formidable challenge for oil markets," said the International Energy Agency in its Oil Market Report on Wednesday, adding, "Oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers."

IEA forecasts production and export cuts from Saudi Arabia and Russia have already locked in a 1.2-million-bpd supply deficit in the fourth quarter, and it remains unclear whether these cuts will be extended into 2024.

Thursday's move higher in the oil complex was also realized despite a rallying U.S. dollar index that advanced 0.62% against a basket of foreign currencies after U.S. inflation and retail sales figures for August surprised market expectations to the upside. Retail sales, a measure of consumer spending on goods and services, rose 0.6% last month following an upwardly revised 0.5% gain in July. This marked the fifth straight month of a positive reading while well above market expectation for a 0.2% increase. The larger-than-expected increase was largely driven by spending at gas stations, which advanced 5.2% last month.

Further evidence of an inflationary impact from Saudi-Russian cuts could be found in August consumer price index that jumped 0.6% in August -- the largest monthly gain since February 2022, showed data released Wednesday from the U.S. Bureau of Labor Statistics. On an annualized basis, headline inflation accelerated to 3.7% compared with July's 3.2% increase and a 3% gain in June. August's increase in the index largely reflected a 10.6% jump in gasoline prices along with a 9.1% hike in prices for fuel oil.

Elsewhere, the European Central Bank on Thursday raised its key interest rate by 0.25% -- the tenth consecutive rate hike in a 14-month-long fight against inflation, which reached a record high of 4%, but signaled the hike was likely to be its last in the current tightening cycle. The ECB also raised its forecast for inflation, which it now expects to come down more slowly toward its 2% target over the next two years, while dragging on economic growth. Germany, Eurozone's largest economy, is now forecast to slide into contraction during the fourth quarter, bearing the brunt of high energy prices and the spillover effect from the Russian-Ukraine war. European Commission also predicts that Germany's recession will drag on Eurozone's economy that already shows signs of widespread deterioration. That doesn't bode well for the demand outlook in Europe where conservation efforts along with high energy prices have already curtailed consumption.

At settlement, NYMEX October WTI futures advanced $1.64 to $90.16 per bbl, and ICE November Brent strengthened $1.82 to $93.70 per bbl. NYMEX October RBOB futures added $0.0043 to $2.7427 per gallon, and the front-month ULSD contract rallied $0.0461 to $3.4815 per gallon.

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