A previous version of this report misstated the number of consecutive weekly declines in U.S. crude supplies reported by the EIA. Supplies fell for a fourth-straight week.
Oil futures declined on Wednesday, but traded off the session’s lows, with prices finding support after major oil producers decided to make no changes to their plan to gradually increase crude production.
Oil also reacted to data from the U.S. government, which revealed a weekly drop in domestic crude inventories, along with an unexpected increase in gasoline supplies.
The Organization of the Petroleum Exporting Countries and its allies, a group collectively known as OPEC+, announced Wednesday that it would stick to the plan it reached in July to increase oil production by 400,000 barrels a day each month from August.
“Demand bears watching,” but the current oil price level and inventory picture didn’t appear to suggest that OPEC+ should change course from the plan announced several weeks ago, said Stacey Morris, director of research at energy index provider Alerian.
Changing course this early into the plan could have potentially been “more unsettling for markets,” and there were “simply are not enough red flags to change course at this point,” she told MarketWatch. “Oil prices are not that far off the July highs seen before OPEC+ announced the plan to restore volumes.”
“For OPEC+, sticking with their plan seems to be the best course of action at this point,” said Morris.
West Texas Intermediate crude for October delivery
fell 37 cents, or 0.5%, lower at $68.13 a barrel, after the contract for U.S. benchmark oil fell 1% on Tuesday on the New York Mercantile Exchange.
In August, prices for the front-month contract ended 7.4% lower, the first monthly loss since March, according to Dow Jones Market Data.
Meanwhile, global benchmark November Brent crude
fell 43 cents, or 0.6%, at $71.20 a barrel, following a 0.6% decline in the session before, which contributed to its monthly loss of 4.4%.
Prices for oil had turned sharply lower early Wednesday, with traders attributing that move to reports that OPEC+ raised their global oil demand forecast for this year, while Russia suggested that it’s ready to increase production above its set quotas.
Oil took a “quick, sharp drop” after some reports that the Russian Deputy Prime Minister Novak said that oil demand was expected to rise by 5.8 to 6 million barrels a day in 2021 but also reportedly said Russia had the ability to raise production beyond OPEC+ limits, said Phil Flynn, senior market analyst at The Price Futures Group. “The market took that as a sign that maybe Russia won’t go along with being restricted by the cartel.”
However, OPEC+ “worked out their differences ahead of time” and followed through with a committee recommendation to leave the production agreement in place, said Flynn.
Meanwhile, the Energy Information Administration on Wednesday reported that U.S. crude inventories fell by 7.2 million barrels for the week ended Aug. 27 following three weeks of declines in a row.
That was larger than the average decline of 4.4 million barrels expected by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a roughly 4 million-barrel decline, according to sources.
Crude inventories showed a “solid draw” despite production actually ticking higher,” said Matt Smith, director of commodity research at ClipperData. The numbers are “not yet reflective of the impact of Hurricane Ida on Gulf of Mexico production,” he said.
“Exports were stronger, aiding the draw — tag-teaming with refining activity at just under 16 million barrels per day to be strong enough to overpower a tick higher in imports and production,” he told MarketWatch.
The EIA reported a weekly inventory increase of 1.3 million barrels for gasoline, while distillate stockpiles declined by 1.7 million barrels. The S&P Global Platts survey forecast supply declines of 1.8 million barrels for gasoline and 500,000 barrels for distillates.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by 800,000 barrels for the week.
Market participants also continued to deal with the effects of Hurricane Ida which hit the U.S. Gulf Coast last Sunday and temporarily disabled swaths of production and oil refineries in the region.
Traders continue to watch the recovery efforts for Gulf Coast refinery operations in the wake of Hurricane Ida, with an estimated that 93.69% of current oil production in region shut in, along with 94.47% of natural-gas production, according to the Bureau of Safety and Environmental Enforcement on Tuesday.
Natural-gas futures for October
were trading 25.3 cents, or 5.8%, higher at $4.63 per million British thermal units, following a 1.7% gain on Tuesday.
Natural-gas prices are “pushing towards yet another multi-year high on expectations of another smaller-than-normal storage injection, and on reports that offshore gas production may take weeks to fully recover,” said Christin Redmond, global commodity analyst at Schneider Electric, in a market update.
On average, analysts expect the EIA on Thursday to report an increase 20 billion cubic feet in natural-gas supplies for the week ended Aug. 27 — below the five-year average build, according to a poll conducted by S&P Global Platts.