WTI supply worries are in the spotlight prior to the US CPI

West Texas Intermediate (WTI) has been in the red on Wednesday, losing roughly 1.8% at Wall Street's closing bell. Following last week's two-million-barrel-per-day reduction in production plans, OPEC reduced its demand forecasts for this year and the following year by two million barrels per day. WTI traded between $86.30 and $90.05 prior to the time of writing, when it was trading at 87.03.

Oil prices are a major topic this week in relation to Thursday's release of the US Consumer Price Index, where core prices have likely remained robust in September, with the series reporting another substantial 0.5% MoM increase. "Shelter inflation likely remained elevated, but we anticipate a dramatic decline in the price of old automobiles. Importantly, gas prices likely provided additional respite for the headline figure, falling approximately 5% month-over-month. Our MoM predictions imply 8.2%/6.6% YoY growth for total and core prices," TD Securities analysts explained. The statistics will likely strengthen the Federal Reserve's resolve to slow the economy through higher interest rates and heighten recession worries, both of which have been bearish for oil.

OPEC slashed its 2022 demand prediction by 0.5 million barrels per day in its authoritative Monthly Oil Market Report, citing "the extension of China's zero-COVID-19 limitations in certain locations and economic concerns in OECD Europe." Despite resistance from the Biden Administration, OPEC+ reduced its production plans last week in an effort to prop rising oil prices.

TD Securities analysts stated, "The OPEC+ group's effective 1.1m bpd cut will tighten physical balances, providing a positive impetus for both spot prices and timespreads and so encouraging greater involvement." "This is setting the stage for a big price increase as US SPR releases come to a halt and Russian production begins to decline at a quicker rate. The return of shipments from Kazakhstan provides a partial offset, but reports indicate that oil industry strikes in Iran have moved to a large crude refinery in the southwest, adding to supply uncertainties. The right tail of oil prices remains robust.

"In the meantime, a pipeline rupture has halted an estimated 200k bpd of flow from the Northern Druzhba pipeline, aggravating the near-term tightening of balances. This leaves traders focused on the demand side of the equation; a really harsh landing might still derail the rebound in energy prices, but the recession that most analysts anticipate will likely result in a slowing, but not a drop, in oil demand growth. This might worsen the tightness of energy markets at a time when Chinese mobility is strengthening, as evidenced by our monitoring of road traffic conditions in the 15 cities with the highest vehicle registrations.