DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange edged off six-month lows early Wednesday as market participants reassessed the outlook for global inventory levels at the start of 2024, while a larger-than-expected draw from U.S. commercial oil stockpiles last week lent additional price support for the battered complex.

In its December Short-term Energy Outlook, the U.S. Energy Information Administration estimated additional production cuts announced by OPEC+ on Nov. 30 will lead to deeper inventory drawdowns during the first quarter 2024, exerting upward pressure on oil prices. The agency forecasts international crude benchmark Brent price will increase from an average of $78 bbl in December 2023 to an average of $83 bbl for all of 2024.

"We expect OPEC+ production cuts will offset lower global demand growth, prevent increases in global oil inventories, and keep Brent prices above $80/b next year," said EIA.

Inventory draws will average 800,000 bpd during the first three months of 2024 before the market returns to balance for the remainder of the year, said EIA. However, the potential for OPEC+ production to increase after the voluntary cuts expire in the first quarter of 2024 creates some downside risk for our expected oil prices, they continued.

Oil's tepid move higher Wednesday morning follows a rather mixed inventory report released by the American Petroleum Institute late Tuesday, showing commercial oil inventories increased by a larger-than-expected margin last week while refined fuels stocks posted another outsized build. Further details of the report showed U.S. commercial crude supply was drawn down 2.349 million bbl, more than twice an expected 1.2 million bbl drop. Supply at the Cushing, Oklahoma, tank farm, the NYMEX delivery point for West Texas Intermediate futures, increased 1.4 million bbl.

The data further detailed a 5.8 million bbl gasoline supply build, more than three times calls for an increase of 1.9 million bbl and a 300,000-bbl build in distillate fuel inventories.

In financial markets, investors continue to digest Tuesday's November inflation report that came a day before the Federal Open Market Committee makes its final rate decision for the year. The consumer price index report revealed underlying inflation remains stubborn, tempering hopes for a near-term interest rate cut, and feeding into expectations of a demand-sapping economic slowdown, at least over the first quarter of 2024.

So-called "super-core inflation," which includes shelter and services categories, rose to 0.5% from October's 0.3% reading, signaling the consumer-powered sectors of the economy continue to outperform. In November, Americans paid more for rent, food, airline tickets, and medical care services.

These are the kind of broad-based price increases that should spur hawkish rhetoric from Fed Chairman Jerome Powell when he delivers his prepared remarks 30 minutes after FOMC releases its policy statement at 2 PM ET.

Consensus is nearly universal that FOMC will hold the federal funds rate unchanged in a 5.25%-5.5% target range but likely to push back against the narrative of aggressive rate cuts early next year.

"We see central banks pushing back against market hopes for rate cuts at this week's meetings. We expect structurally higher interest rates in the new regime," said investment fund Blackrock.

Currently, markets still price in 100 basis points of rate cuts next year which would bring the target range to 4.25%-4.5% by the end of 2024.

Near 7:30 a.m. EST, WTI January futures on NYMEX edged higher to $68.82 per bbl, up $0.24 after falling as much as 4% in the prior session. The international crude benchmark Brent contract for February eased $0.25 to $73.48 per bbl. NYMEX RBOB January futures increased $0.0049 to $1.9839 per gallon and NYMEX ULSD futures for January delivery added $0.0320 to $2.5392 per gallon.

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