Oil Futures Down on Weak Economic Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pulled back on Friday, erasing some of their weekly gains. Markets remain gripped with fear over the coronavirus outbreak in and out of China and economic data beginning to show the extent of the epidemic's impact.

U.S. services Purchasing Managers Index dropped below the 50 mark in February, indicating contraction for the first time since 2013. Following months of steady growth, February's reading came at just 49.4, far below the market's expectations for a 52.3 showing. The preliminary reading on manufacturing PMI came in at 50.8 in the reviewed month, holding above the contraction zone, but still below market consensus for a 51.4 reading.

Finally, U.S. Composite PMI fell to a multi-year low of 49.6 -- a big miss for February.

The U.S. dollar came under heavy selling pressure in response to the disappointing PMI data, while invariably lifting the front-month West Texas Intermediate futures contract from earlier lows. The U.S. Dollar Index, which touched a fresh 3 1/2-year high of 99.91 on Thursday, was last seen down 0.60% on the session at 99.195.

In market-on-close trade, the NYMEX April West Texas Intermediate contract declined $0.50 for a $53.38-per-barrel (bbl) settlement, while gaining nearly 2% on week. The front-month international Brent contact posted a steeper drop of $0.81 for a $58.50-per-bbl session, an advance of 1.8% on the week.

NYMEX March RBOB futures plunged 1.91 cents to a better-than-six-week low of $1.6506 a gallon, while still adding 3.9% from last Friday, Feb. 14. The front-month ULSD contract shed 1.10 cents for a $1.6866 gallon settlement, down 0.8% this week.

The oil complex came under heavy selling pressure following the overnight release of Japan's manufacturing index, detailing the fastest contraction pace in over seven years with the decline attributed to lower export demand in its two key trading partners -- South Korea and China.

Both countries Friday reported another alarming spike in new coronavirus cases, stoking fears that the viral disease is far from its long-promised peak.

According to the latest World Health Organization situation report, there have been another 1,073 confirmed cases in 26 other countries, and an additional eight deaths. The fresh spike of new infections came as multinational companies slashed their business and travel to Asia over the past month.

Foreign manufacturers that rely on Chinese supply chains have already reported major disruptions. Earlier this week, Apple announced the company would miss its quarterly profit target due to supply shortages and lower demand in China.

The economic and social fallout from the coronavirus could be reflected in forthcoming economic data slated for release next week. On Monday, Feb. 24, the National Bureau of Statistics in Beijing will report on fixed-asset investment, industrial production and retail sales for the month of January. Predictably, consensus calling for across-the-board downward revisions, likely resulting in another wave of selling in risk-asset markets.

Liubov Georges can be reached at luibov.georges@dtn.com

(BAS)

Liubov Georges