DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate (WTI) futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange nosedived 5% on Thursday amid signs of a well-supplied physical oil market. United States oil stocks climbed to the highest level in 2 1/2 months and marginal oil producers in Africa and Latin America increased output following months of lagging performance.

Front-month WTI and Brent contracts broke through their 200-day moving averages on the monthly charts on Thursday, with six-month calendar spreads for both benchmarks sharply narrowing, unwinding backwardated market structures on easing concerns over available supplies.

On Nov. 12, Nigeria's state-owned oil company NNPC said it had restarted a 275,000 barrel-per-day (bpd) oil project operated in partnership with Total Energies. At 1.42 million bpd, Nigeria's crude output is at the highest level since April 2020 before the coronavirus pandemic shuttered a large chunk of the country's output. While still below a 1.74 million bpd target allotted to Nigeria in the OPEC+ supply accord, the rebound in oil production has seen at least 220,000 bpd return to the market this year.

Additionally, Iraq's Kurdish region could restart oil exports through the Iraq-Turkey pipeline as soon as this week, according to a Reuters report that cited Kurdish Prime Minister Masrour Barzani.

"The Prime Minister reaffirmed the KRG's readiness to resume oil exports," the Kurdistan Regional Government said in a statement after a Nov. 12 meeting with Iraqi oil minister Hayan Abdel Ghani.

Should the federal government in Baghdad and Turkish authorities broker the deal, it would immediately bring an additional 450,000 bpd of oil to the physical oil market. Turkey halted all oil exports from the northern fields in Kurdistan on March 23 after the International Chamber of Commerce ordered Turkey to pay the federal government in Baghdad damages for unauthorized exports between 2014 and 2018.

In South America, Brazil is rapidly increasing its oil output which now stands at an all-time high 3.7 million bpd amid a ramp-up at four offshore oil platforms. The country's total liquids production increased by 210,000 bpd in September to 4.4 million. This is the highest liquids production rate on record for the country, according to OPEC figures.

Taking together, output gains by smaller producers are offsetting steep supply cuts by Saudi Arabia and Russia, reflecting the recent pullback in oil prices. Prices declined for each of the past three weeks, with both crude benchmarks wiping out all gains triggered by the early September announcement of 1.3 million bpd in supply curbs through the end of the year by Saudi Arabia and Russia.

Oil's staggering losses come despite industry data collected by the Joint Organizations Data Initiative (JODI) showing that global oil demand expanded at a record-breaking pace of 2.5 million bpd in September. This marked the fifth consecutive month of record-high consumption growth on a seasonal basis.

The JODI-Oil database is updated monthly with data supplied by 100 countries which represent 90% of the world's oil supply and demand.

While JODI's snapshot of the global oil market might suggest supply-demand balances are tight, commercial oil inventory in the U.S. rose for the fourth consecutive week through Nov. 10 to the highest level since August. At 439.4 million bbl, nationwide oil stockpiles narrowed the deficit against the five-year average to 2% from 5% seen in mid-October.

At settlement, NYMEX December WTI futures declined $3.76 to a four-month low $72.90 a barrel (bbl), with January WTI expanding its premium against the front-month contract to $0.19. ICE January Brent futures dropped back $3.76 to $77.42 bbl and the February contract settled the session at $77.51. NYMEX December RBOB futures retreated $0.1007 to $2.1011 gallon and NYMEX December ULSD futures eased $0.1185 to $2.7502 gallon.

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