Oil was near year highs as the International Energy Agency added to a pace of forecasts that the market will tilt towards a significant supply shortfall in the second half of this year.
Demand will outstrip supply by 1.2 million barrels a day on average in the second half, the IEA forecast on Wednesday. This follows a forecast by the Organization of the Petroleum Exporting Countries that the fourth quarter could see the biggest deficit in more than a decade.
The figures reinforce a sharp shift in sentiment in recent weeks. The options price shows increasing demand for bullish call options, and key times are trading on a bullish pullback, indicating tight supply.
West Texas Intermediate fluctuated around $88 a barrel throughout the session, mainly following stock market moves. However, traders are bracing for a possible pullback as technical indicators such as the Relative Strength Index show futures close to overbought territory after the renewed rally in recent weeks. Earlier, US inflation data offered a mixed picture of the outlook for the Federal Reserve’s interest rate policy.
Meanwhile, U.S. crude stockpiles rose by nearly 4 million barrels last week, according to a report from the Energy Information Administration on Wednesday. Inventories at the nation’s largest storage center in Cushing, Okla., fell again, falling to the lowest since December.
The bullish outlook added further impetus to a rally that began in mid-June when Saudi Arabia and Russia curbed supply, while US and Chinese demand proved relatively resilient. Fuel markets, particularly diesel-like products known as distillates, have also been squeezed.
“The market is really adjusting in the second half of the year,” Toril Bosoni, head of the IEA’s oil market division, said in an interview with Bloomberg Television. “We are at risk of seeing a continued restriction in the market, especially for distillates, coming into the winter months.”
Prices:
- WTI for October delivery fell 32 cents to settle at $88.52 a barrel in New York.
- Brent for November settlement fell 18 cents to settle at $91.88.
