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Post: Futures Movers: Oil prices rise after three-consecutive session declines, buoyed by a drop in U.S. distillate supplies

Oil futures headed higher Thursday, with prices looking to recoup some of the losses suffered over the past three trading sessions, finding support from expectations of tight winter heating-fuel supplies in the wake of a nearly five million-barrel weekly drop in U.S. distillate inventories.

Traders also digested the latest stronger-than-expected U.S. inflation reading, the IEA’s warning that OPEC+ supply cuts could tip global economy into recession, and a bigger-than-expected weekly rise in U.S. crude supplies.

Price action
  • West Texas Intermediate crude for November delivery
    CL.1,
    +2.64%

    CL00,
    +2.64%

    CLX22,
    +2.64%

    rose $1.45, or 1.7%, to $88.72 a barrel on the New York Mercantile Exchange.

  • December Brent crude
    BRN00,
    +2.54%

    BRNZ22,
    +2.54%
    ,
    the global benchmark, climbed by $1.49, or 1.6%, to $93.94 a barrel on ICE Futures Europe.

  • Back on Nymex, November gasoline
    RBX22,
    +3.05%

    added 2.5% to $2.6962 a gallon, while November heating oil
    HOX22,
    +3.35%

    was up 2.5% at $4.0326 a gallon.

  • November natural gas
    NGX22,
    +3.78%

    climbed by 3.1% to $6.631 per million British thermal units.

Market drivers

Crude prices turned higher after losing ground in early dealings. U.S. government data revealed Thursday a 4.9 million-barrel drop in domestic supplies of distillates, which include heating oil, for the week ended Oct. 7.

“When you step back and you look at this report from the bird’s eye view, the market is starting to get very concerned about distillate supplies — especially as we get closer to winter,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

The recent market weakness from fears of Federal Reserve interest-rate increases and the strong dollar are “now flipping over to the fact that supplies are dangerously low as we head into winter,” he said.

U.S. data early Thursday showed the year-over-year rise in the consumer price index slowed to 8.2% last month from 8.3% in August, while the annualized increase in core CPI, which strips out volatile food and energy prices, rose to 6.6% from 6.3%. Both numbers came in higher than economists polled by The Wall Street Journal had expected.

The data briefly triggered a selloff across assets, but oil prices shifted higher, along with benchmark U.S. stock indexes.

Meanwhile, the decision last week by the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+ — to cut output by 2 million barrels a day threatens to deepen a global energy crisis by sending oil prices higher at a time of already elevated inflation and weak economic growth, the International Energy Agency said in a monthly report.

Supply data

On Thursday, the Energy Information Administration reported that U.S. crude inventories rose by 9.9 million barrels for the week ended Oct. 7. On average, analysts forecasted a climb of 2.2 million barrels, according to a poll conducted by S&P Global Commodity Insights.

After spending most of 2022 at record low levels, U.S. stockpiles of crude have risen on the combination of weaker seasonal demand and Strategic Petroleum Reserve releases,” Peter McNally, global sector lead for industrials materials and energy at Third Bridge, told MarketWatch.

The crude supply increase came on the heels of a weekly crude stock decline of 7.7 million barrels in the SPR, EIA data show. Crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 400,000 barrels for the week though.

The oil market is increasingly concerned about the SPR said Flynn. Many people feel that the SPR is being drawn down “strictly for political purposes” and is going to “end up leaving us with an even tighter supply scenario as we get deep into winter.”

In addition to the big drawdown in distillate inventories, the report from the EIA, which reported its data a day later than usual due to Monday’s Federal holiday, showed a weekly inventory climb of 2 million barrels for gasoline. The S&P Global Commodity Insights survey had called for decreases of 2.1 million barrels for gasoline and 2.3 million barrels for distillates.

“While week-to-week data is very volatile, there was a notable drop in U.S. gasoline demand to levels below consumption in 2020, as the economy was just starting to recover from lockdowns,” McNally said, adding that Hurricane Ian potentially impacted the data.  

Separately, the EIA also reported Thursday that domestic natural-gas supplies climbed by 125 billion cubic feet for the week ended Oct. 7. That compared with the average analyst forecast for an increase of 123 billion cubic feet, based on a survey conducted by S&P Global Commodity Insights.

Total working as stocks in storage remain below the year-ago and five-year average levels.

On Wednesday, the EIA released its monthly Short-term Energy Outlook, lowering its forecasts for 2022 and 2023 WTI and Brent oil prices. The government agency also warned in its Winter Fuels Outlook that many households in the U.S. are likely to see sharply higher costs to heat their homes this winter, given expectations for higher natural-gas and heating-oil prices.

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