DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were higher in early trading Wednesday in front of contract expirations for Brent and oil products and the conclusion of the third quarter Friday, with a global shortfall of oil production against consumption expected to widen in the fourth quarter.

West Texas Intermediate and Brent advanced to one-week highs following consolidation trade ahead of weekly inventory data from the Energy Information Administration scheduled for release at 10:30 a.m. EDT, with WTI's six-month calendar spread blowing out to an $8.75-barrel (bbl) 14-month high on concern over low crude inventory at the Cushing tank farm in Cushing, Oklahoma, the delivery location for the WTI contract.

EIA last reported Cushing crude inventory at a 22.9-million-bbl 14-month low on Sept. 15, with working inventory at 29.3% of capacity. American Petroleum Institute late Tuesday afternoon reported an 828,000-bbl draw from Cushing stocks during the week ended Sept. 22 even as it reported a 1.586-million-bbl build in commercial stocks in the United States. If confirmed by the EIA, that would press Cushing inventory to the upper band of the tank farm's minimum operating level that is estimated between 16 and 22 million bbl. Of the 94-million-bbl tank storage capacity at Cushing, 16 million bbl or 17% of that capacity is for use by Cushing's operating company, according to EIA.

U.S. crude exports in recent weeks have reached capacity limits near 5 million barrels per day (bpd), as foreign buyers contend with production cuts by OPEC+, while some global refiners look to the quality of light crude oil from the Permian Basin in western Texas, and eastern New Mexico. Certain pipelines from the Permian to Corpus Christi are dedicated to only shipping the light crude, ensuring quality control. Moreover, WTI is now included in the basket of crudes that make up the Brent price by price reporting agencies.

WTI's advance coincides with yet another fresh high in the U.S. dollar, which reached a fresh 10-month high of 106.180 in index trading against a basket of foreign currencies. The dollar continues to rally following last week's Federal Open Market Committee meeting, with a majority of Fed officials expecting to lift the federal funds rate by 25 basis points to a 5.5% by 5.75% target range. Moreover, Fed officials project the key overnight bank borrowing rate will hold above 5% in 2024, dashing expectations for multiple rate cuts next year. The Fed repeated its refrain that interest rates would need to stay higher for longer to lower inflation to its 2% target. The consumer price index in August increased 0.6% month-on-month because of higher energy costs, bringing the year-on-year increase in the inflation indicator to 3.6%.

Oil product futures also gained in early trading Wednesday after testing lower support price points Tuesday, boosted by weekly drawdowns from commercial inventory. API reported a modest 200,000-bbl draw from gasoline inventory, and a more-than-expected 1.698-million-bbl decline in distillate stock levels. EIA last reported gasoline inventory 6.841 million bbl or 3% below the five-year average, and distillate stocks 20.871 million bbl less than the historical baseline.

Nearing 8 a.m. EDT, NYMEX November WTI futures were up $1.70 at $92.09 bbl, and ICE November Brent was $1.34 higher at $95.30 bbl, widening its premium to the December contract to nearly $1.80 bbl ahead of expiration Friday afternoon. NYMEX October ULSD futures were up $0.0050 at $3.2288 gallon, holding a nearly $0.05 premium over the November contract. NYMEX October RBOB futures gained $0.0368 to $2.5990 gallon, also a $0.05 premium to next month's delivery.

Brian L. Milne can be reached at brian.milne@dtn.com