WASHINGTON (DTN) -- West Texas Intermediate November futures traded on the New York Mercantile Exchange fell below $83 per barrel on Thursday under pressure from a surging U.S. dollar index tied to persistent inflation pressures across the domestic economy, while an outsized build in U.S. crude stocks coupled with record-high oil production eased concerns over tight market fundamentals.
Late morning inventory report from the Energy Information Administration offered more evidence the physical oil market is looser at the outset of the fourth quarter, helped by production growth in the United States and signs of acute demand destruction.
Domestic oil production surged to a new record-high 13.2 million bpd at the start of October, surpassing the previous high of 13.1 million bpd set in March 2020. In Tuesday's Short-term Energy Outlook, EIA forecasts domestic oil production will average 12.92 million bpd this year before climbing to 13.12 million bpd in 2024.
Production gains in the United States, Canada, and Brazil are seen eventually offsetting output cuts from the OPEC+ leaders Saudi Arabia and Russia, prompting worldwide inventories to start building again during the first quarter of 2024.
Additionally, U.S. gasoline consumption continues to trail pre-COVID levels amid emerging signs of structural demand destruction as the broader economy slows. Gasoline supplied to the U.S. market, a measure of demand, averaged just 8.4 million bpd over the past four weeks, down 3.6% from the same period last year. International Energy Agency said Thursday morning in its Oil Market Outlook that "Evidence of demand destruction is appearing across the U.S. market with preliminary September data showing that gasoline consumption falling to two-decade lows."
Demand destruction in the emerging markets could be even deeper, as currency effects and removal of fuel subsidies have amplified the rise in gasoline prices.
Further pressuring the oil complex is a rallying U.S. dollar that jumped 0.76% against a basket of foreign currencies to settle the session at 106.367 after government data showed underlying inflation last month failed to ease in line with expectations. U.S. Consumer Price Index in September increased at a 0.4% rate, surpassing consensus for a more modest 0.3% increase, lifted by a surprise surge in rents and transportation costs.
Shelter costs continued to be the main factor in the inflation increase, accounting for more than half the rise in September CPI. Energy costs rose 1.5%, including a 2.1% pickup in gasoline prices and 8.5% in fuel oil, and food was up 0.2% for the third month in a row. On a 12-month basis, food costs climbed 3.7%, including a 6% increase for food away from home, while energy costs were off 0.5%.
Services prices also posted a 0.6% gain excluding energy services and were up 5.7% on a 12-month basis.
Federal Reserve monetary policymakers tend to place more weight on inflation in services because those prices are more likely to be driven by the cost of labor, which the Fed can more easily control with interest rates. Higher rates tend to slow the economy and cause companies to reduce hiring or begin layoffs.
At settlement, NYMEX WTI futures for November delivery fell $0.58 to $82.91 per barrel while ICE Brent edged $0.18 higher to $86 per barrel . NYMEX November ULSD futures jumped to $3.0449 gallon, up $0.0464 on the session, and front-month RBOB futures fell $0.0451 to $2.1650 gallon.
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