Oil Futures Pare Gains on Weak US ISM Manufacturing Index
WASHINGTON, D.C. (DTN) -- Oil futures on the New York Mercantile Exchange
and the Brent contract on the Intercontinental Exchange settled mostly higher
on the first trading day of December, except for the NYMEX RBOB contract that
retreated to a six-week low settlement after U.S. ISM manufacturing index
contracted for the fourth consecutive month in November, stoking fears over a
further slowdown in industrial activity and its deleterious effect on fuel
consumption in the world's largest economy.
At settlement, NYMEX January West Texas Intermediate futures moved up $0.79
to $55.96 bbl and ICE February Brent contract ended the session $0.43 higher at
$60.92 bbl. Product futures ended mixed, with NYMEX January ULSD futures
gaining 0.75cts to $1.8860 gallon and NYMEX January RBOB futures declined
1.77cts to $1.5733 gallon.
Institute of Supply Management reported Monday U.S. manufacturing index
slipped 0.2 points in November to 48.1, well below market consensus for a 49.4
reading. The ISM manufacturing index has struggled to recover above the 50
threshold for the four consecutive months now, having dropped to a 10-year low
47.2 in September. The decline in domestic manufacturing activity also
coincides with the breakdown in U.S.-China trade talks in late August,
resulting in punishing tariffs on each other's products and creating an
environment of uncertainty for export-dependent sectors of the economy.
In contrast, China's manufacturing sector has outperformed competitors in
the United States and European Union, having posted gains for four straight
months since August, according to the Caixin Private Survey. Even the more
conservative estimates from China's official data showed the first expansion
during the second half of 2019 in November with a 50.6 reading. Overnight
figures from Eurozone also showed a slight uptick in the industrial output by
the 28-nation economic bloc, suggesting European Central Bank's massive
stimulus package is shoring up the continent's ailing economy.
The bearish buildup in the U.S. manufacturer sector might lead the Federal
Reserve to reconsider its course of nonaction in interest rates at its last
policy meeting of the year next week. Markets are currently pricing in a 15%
chance the Fed will lower rates this month with most expecting the central bank
to hold the rate steady at 1.75%.
Investors will also keep an eye for new developments related to this week's
meeting between Organization of the Petroleum Exporting Countries and 10 allied
producers led by Russia on Thursday-Friday (12/5-6), when the group is set to
debate the fate of their 1.2 million bpd production cut agreement.
Wall Street Journal reported Monday that Saudi Arabia will push for OPEC and
its partners to extend curbs through mid-2020. However, Russia---the second
largest producer within the group indicated it was unwilling to commit to
longer cuts and said the group must reconvene in April to again review policy
course. Further complicating the debate, Iraq's oil minister suggested OPEC+
should consider cutting crude production by another 400,000 bpd to 1.6 million
bpd to shore up prices against faltering demand. All being said, markets are
likely to view unchanged quotas under the deal's current timetable as a bearish
development, resulting in a mild selloff.
Liubov Georges, 1.646.359.4088, email@example.com, www.dtn.com. (c)
2019 DTN. All rights reserved.