Oil prices settle higher as traders weigh potential for changes to global supplies

Price action

• West Texas Intermediate crude for October delivery
  CL00,
  +0.22%

  CLV23,
  +0.22%
  rose 16 cents, or 0.2%, to settle at $79.05 a barrel on the New York Mercantile Exchange. On Wednesday, prices settled at the lowest for a front-month contract since July 26.

• October Brent crude
  BRN00,
  +0.22%

  BRNV23,
  +1.13%,
  the global benchmark, climbed by 15 cents, or 0.2%, to $83.36 a barrel on ICE Futures Europe. It ended Wednesday at its lowest since Aug. 2.

• September gasoline
  RBU23,
  -1.84%
  tacked on 0.4% to $2.78 a gallon and September heating oil
  HOU23,
  +1.81%
  settled at $3.16 a gallon, up 0.9%.

• September natural gas
  NGU23
  added 0.9% to $2.52 per million British thermal units.

Market drivers

The Organization of the Petroleum Exporting Countries may need to consider cutting oil production even more as some of the group’s members that have, in the past, struggled with output losses have been sources of growth, Bloomberg reported Thursday, citing an interview with Ed Morse, Citigroup’s head of commodities research.

“Any mention of OPEC+ policy, since the group surprised markets with production cuts in late March — which resulted in a sizeable $5 [a] barrel gap higher in futures prices to start the month of April — has triggered short covering,” Tyler Richey, co-editor at Sevens Report Research told MarketWatch. “The pain of that multi-dollar gap to fresh 2023 highs remains fresh for the speculators caught on the wrong side of the trade.”

Meanwhile, Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, told CNBC in an interview Thursday that the Fed may have raised interest rates high enough to bring inflation down over the next few years to pre-pandemic levels of around 2%.

The more dovish commentary out of the Fed’s Harker today is likely “relieving some rate-hiking fears,” said Richey.

Still, U.S. officials were drafting a proposal that would ease sanctions on Venezuela’s oil exports if the country moves toward a free and fair presidential election, Reuters reported Wednesday afternoon.

Also read: Nuclear power could see its biggest expansion in decades, leading to increased demand for uranium

The hope is that easing oil sanctions on Venezuela will make it better able to export a “coveted heavy blend of dirty oil that is so good in yielding diesel,” said Phil Flynn, senior market analyst at The Price Futures Group, adding that diesel is globally undersupplied.

“Something better work when it comes to diesel supply as we head into winter,” he said in Thursday’s daily report.

U.S. supply of distillates, which include diesel, in the weekly Energy Information Administration report released Wednesday was up by 900,000 barrels last week. However, Flynn pointed out that’s still 16% below the five-year average for this time of year, and there is some doubt over whether Venezuela can raise production fast enough to make a big difference even if sanctions are lifted, he said.

Overall, oil prices have seen a summer rally, trading higher for the quarter to date, fueled by growing confidence in the global economic outlook and OPEC+ supply cuts. Prices, however, have pulled back in August, with weakness tied to worries over China’s economic outlook.

Meanwhile, natural-gas prices turned higher after the U.S. Energy Information Administration reported Thursday that U.S. natural-gas supplies in storage rose by 18 billion cubic feet for the week ended Aug. 18. That was below the average increase of 29 billion cubic feet forecast by analysts surveyed by S&P Global Commodity Insights.