Oil Lingers Near Yearly High Amid Bullish Outlooks

Oil hovered near its highs of the year as the International Energy Agency added to a drumbeat of forecasts that the market will tip into a significant supply deficit in the second half of this year.

Demand will eclipse supply by 1.2 million barrels a day on average during the second half, the IEA projected Wednesday. That follows a forecast from the Organization of Petroleum Exporting Countries that the fourth quarter may see the biggest deficit in more than a decade. 

The numbers reinforce a strong shift in sentiment in recent weeks. Options pricing shows growing demand for bullish call options, and key timespreads are trading in a bullish backwardation, indicating scarce supply. 

West Texas Intermediate fluctuated near $88 a barrel throughout the session, largely following equity market movements. Yet traders are bracing for a potential pullback as technical gauges such as the relative strength index show futures near overbought territory after the renewed surge over the past few weeks. Earlier, US inflation data offered a mixed picture on the outlook for Federal Reserve interest rate policy.

Meanwhile, US crude stockpiles rose by almost 4 million barrels last week, according to an Energy Information Administration report Wednesday. Inventories at the nation’s biggest storage hub at Cushing, Oklahoma, dropped once again, falling to the lowest since December.

The bullish outlooks added more momentum to a rally that started in mid-June as Saudi Arabia and Russia curbed supply while US and Chinese demand proved relatively resilient. Markets for fuels, especially diesel-like products known as distillates, have also seen squeezes.

“The market is really tightening in the second half of the year,” Toril Bosoni, head of the IEA’s oil market division, said in a Bloomberg Television interview. “We’re at risk of seeing continued tightness 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.