Oil

Oil ticks lower as IEA offers mixed picture on crude demand

Oil futures ticked down in choppy trade on Wednesday, after the International Energy Agency cut its outlook for China’s crude demand but projected that European power producers would boost demand for oil as they switch away from natural gas following Russia’s halt to flows through the Nord Stream pipeline.

Price action
  • West Texas Intermediate crude for October delivery
    CL.1,
    -0.79%

    CL00,
    -0.79%

    CLV22,
    -0.79%

    was up down 52 cents, or 0.6%, at $86.79 a barrel on the New York Mercantile Exchange.

  • November Brent crude
    BRN00,
    -0.77%

    BRNX22,
    -0.77%
    ,
    the global benchmark, was down 51 cents, or 0.5%, at $92.66 a barrel on ICE Futures Europe.

  • Back on Nymex, October gasoline
    RBV22,
    -0.77%

    fell 0.7% to $2.462 a gallon, while October heating oil
    HOV22,
    -5.34%

    slumped 5.4% to $3.35 a gallon.

  • October natural gas
    NGV22,
    +0.88%

    rose 0.6% to $8.33 per million British thermal units.

Market drivers

In its monthly report, the Paris-based IEA cut its forecasts for Chinese oil demand by 400,000 barrels a day in 2022, to 15 million barrels a day, 420,000 barrels a day less than last year. For 2023, the IEA cut its China demand forecasts by 300,000 barrels a day, but still expects demand to rise to 16 million barrels a day as COVID-19 pandemic restrictions are relaxed.

In Europe, soaring natural gas prices are expected to prompt power plants to switch to crude, providing a boost to oil demand of 700,000 barrels day in the six months through March 2023, the IEA said, up around 150,000 barrels a day from the agency’s August report.

Oil prices fell Tuesday after a hotter-than-expected U.S. August consumer-price index reading dashed ideas the Federal Reserve would begin to slow interest-rate increases. Instead, the data boosted expectations for a 75 basis point rise in the fed-funds rate when policy makers next week, with some traders penciling in a 100 basis point move. The U.S. dollar soared, weighing on commodities priced in the currency.

Crude has found some support after Bloomberg reported on Tuesday that the U.S. could begin refilling the Strategic Petroleum Reserve if crude falls to $80 a barrel, analysts said.

“In addition to refilling storage, which has been heavily tapped into this year, the move would reportedly also be taken to try to support prices at lower levels, so as to try to ensure that we continue to see growth in US oil output. US SPR releases have helped out the market significantly this year, however, these releases are set to come to an end in October,” said Warren Patterson, head of commodities strategy at ING, in a note.

U.S. supply data will also be in focus. The American Petroleum Institute late Tuesday said U.S. crude inventories jumped by 6 million barrels last week, according to news reports, while gasoline stocks fell 3.2 million barrels and distillates rose 1.8 million barrels.

Official data from the Energy Information Administration is due Wednesday. Analysts surveyed by S&P Global Commodity Insights, on average, look for crude inventories to rise 1.2 million barrels, while gasoline stocks are seen down 1.6 million barrels and distillate inventories down 800,000 barrels.

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