DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange settled Friday's session at a fresh 10-month high of $90.77 per barrel (bbl). Falling inventories at the Cushing supply hub in Oklahoma, the delivery point for the U.S. crude benchmark, amplified forecasts released this week for a deepening global supply shortfall in the fourth quarter amid extended supply cuts by Saudi Arabia and Russia, with a weaker U.S. dollar lent upside buying support.

Brent futures on the Intercontinental Exchange, the international crude benchmark, continued an uptrend on Friday, pushing above $94 per bbl in intraday trade for a second session Friday while advancing for a seventh consecutive week.

Both WTI and Brent futures rose above $90 per bbl for the first time since November 2022 following the Sept. 5 announcement by Saudi Arabia that it would extend a 1-million-barrel-per-day (bpd) production cut through year's end, joined by Russia in announcing a 300,000-bpd reduction in oil exports would continue through the fourth quarter. All major forecasting agencies this week said the global oil market would slide into a deeper supply deficit during the final months of the year, resulting in renewed price volatility.

The International Energy Agency on Wednesday estimated in its Oil Market Report that Saudi-led production cuts have already locked in a 1.2-million-bpd supply shortfall for the fourth quarter.

"The Saudi-Russian alliance is proving a formidable challenge for oil markets. After oil prices traded in relative calm during August, with volatility at multiyear 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.

Domestically, commercial crude stocks at Cushing fell for the fifth straight week through Sept. 8, according to the U.S. Energy Information Administration's weekly report released Wednesday, drawing down stockpiles to a ninth-month low of 24.965 million bbl. Since the end of July, Cushing inventory declined by nearly 10 million bbl. The drawdown reflects not only healthy refinery runs in late summer after early summer challenges at refineries amid extreme heat that disrupted normal operations, but strong exports. Traditionally, U.S. commercial stock data has served as a proxy for changes in global oil inventories due to their transparency.

After steadily advancing through Thursday, ULSD and RBOB futures on NYMEX settled Friday's session lower after encountering resistance. Both products contracts could come under increased selling pressure from emerging concerns over the economic impact from a United Auto Workers strike that took effect Friday against the Big Three U.S. automakers -- General Motors, Ford and Stellatis NV.

Anderson Economic Group estimate the UAW strike of just 10 days would slice $5.6 billion off the U.S. Gross Domestic Product in the third quarter, affecting largely the economies of the Great Lakes states. The auto industry accounts for about 3% of U.S. GDP but has a long-ranging potential to affect production chains and inflation across the whole industrial complex. As of Friday morning, the union demands that UAW workers be granted a 36% wage increase over the next four years, be paid for 40 hours/a week but work for only 32 hours, and equal pay and benefits for less-experienced employees, which would effectively end the tiered employment system for UAW workers.

The Detroit Three counter-offered wage increases ranging from 17.5% to 20% but argued that most of the UAW demands violate the companies' red lines and would put them at a disadvantaged position against non-unionized companies like Tesla.

So far this year, the hourly wage growth across the U.S. economy has remained largely stable, easing from its 5.9% post-pandemic peak to 4.3% in August 2023 despite tight labor market. The Federal Reserve has credited the lack of wage spiral as the major factor behind cooling inflation in recent months, but that dynamic could change on a dime should oil and gasoline prices rise further and labor strikes intensify.

At settlement, NYMEX October RBOB futures slipped $0.0349 to $2.7081 per gallon, and the front-month ULSD contract declined $0.0981 to $3.3834 per gallon.

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