Expectations of dwindling U.S. crude inventories helped prices from falling further last week
Oil prices steadied in early trading on Wednesday after experiencing two consecutive days of losses. Investors are weighing the potential plans from OPEC+ for a larger output increase next month against the likelihood of declining inventories in the U.S.
Brent crude futures for December delivery rose by 22 cents to $66.25 a barrel, while U.S. West Texas Intermediate crude climbed by 19 cents to $62.56 a barrel.
On Monday, both Brent and WTI settled more than 3 percent lower, marking their sharpest daily declines since August 1. On Tuesday, they each experienced additional drops of at least 1.5 percent.
The expectation of dwindling U.S. crude oil inventories has helped prevent prices from falling further. According to market sources citing estimates from the American Petroleum Institute on Tuesday, U.S. crude stocks decreased by 3.67 million barrels in the week ending September 26.
Gasoline inventories rose by 1.3 million barrels, while distillate inventories increased by 3 million barrels from the previous week, the sources reported.
Read more: Crude oil prices decline to $66.68 as market braces for OPEC+ output rise
OPEC’s clarification on output plans
OPEC+ may agree to boost oil production by up to 500,000 barrels per day (bpd) in November, which would be three times the increase made for October, as Saudi Arabia aims to reclaim market share, according to three sources familiar with the discussions.
Eight members of the group, responsible for producing about half of the world’s oil, are considering a hike ranging from 274,000 to 411,000 bpd, two of the sources indicated. A third source mentioned that the increase could potentially reach 500,000 bpd. OPEC stated in a post on X that media reports suggesting plans to raise output by 500,000 bpd were misleading.
Market caution amid supply expansions
Despite these potential supply-side expansions, the market remains cautious due to ongoing geopolitical risks, particularly those related to the conflict in Ukraine. Moscow faces pressure from drone attacks on its refineries, which could limit its refining capacity and affect diesel exports. Additionally, Russia is reportedly contemplating partial bans on diesel exports until the end of 2025 to manage domestic supply shortages caused by sanctions and operational disruptions. These factors contribute to the uncertainty surrounding the actual flow of Russian oil products and overall market tightness in specific segments.
Looming U.S. government shutdown
On the demand side, concerns persist that global economic growth may not be robust enough to absorb the increasing supplies. The potential U.S. government shutdown looms as Democrats and Republicans clash over budget issues, threatening to disrupt government operations and delay the release of key economic data, including the highly anticipated nonfarm payrolls report scheduled for this Friday. This report is crucial for Federal Reserve officials as they assess the health of the U.S. labor market and their policy stance. Market participants are closely monitoring this data to gauge economic momentum and future energy demand.