DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, sending the U.S. crude benchmark towards $76 barrel(bbl) as traders positioned ahead of a highly-anticipated policy meeting among Organization of the Petroleum Exporting Countries and Russia-led partners, with a possible outcome for the alliance to increase production levels above previously agreed on targets as early as next month. Stronger-than-expected industrial data domestically fueled additional buying interest.

Economic activity in U.S. manufacturing sector expanded for the second consecutive month in September despite supply-chain stress that undercut industrial production elsewhere. At 61.1, manufacturing index released by the Institute of Supply Management this morning signaled the strongest expansion since 1983, bolstered by solid increases in demand, production and investments. In contrast, European manufacturing declined sharply at the end of the third quarter, falling by the largest margin since the lockdown of April 2020, under pressure from rising energy prices and widespread fuel shortages. Germany and France, the Eurozone's two largest economies, recorded the sharpest drop in business confidence since lifting of COVID-19 restrictions.

"Supply issues continue to wreak havoc across large swaths of European manufacturing, with delays and shortages being reported at rates not witnessed in almost a quarter of a century and showing no signs of any imminent improvement," said Chris Williamson, chief business economist at IHS.

A similar scenario has been playing out in China, where rattled supply chains coupled with power shortages forced widespread shutdowns across industrial hubs affecting factories supplying Tesla and Apple production lines.

Plant closures will likely worsen problems throughout the supply chain even further and intensify the upward pressure on inflation.

The Dow Jones Industrial Average shrugged at the poor Eurozone and Asian readings, rallying 482 points or 1.4% to 34,326.46 on Friday, while the broader S&P 500 gained 1.15%. The 10-year Treasury yield slipped to 1.474%, pressuring the U.S. Dollar Index toward 94 with a 94.047 settlement.

On the session, NYMEX November West Texas Intermediate futures advanced $0.85 to settle at $75.88 bbl, and ICE December Brent contract rallied $0.97 for a $79.28 bbl settlement. NYMEX November ULSD futures rallied 4.42 cents or 1.7% to $2.3827 gallon, with front-month RBOB futures surging 5.6 cents to $2.25 gallon.

Next week, traders will turn their attention to the OPEC+ meeting scheduled for Monday (10/4), with a possible outcome for the alliance to release extra supply in the fourth quarter. The group still is withholding about 5 million barrels per day (bpd) in oil export sales, releasing 400,000 bpd each month until phasing out all the cuts put in place in April 2020. On Thursday, wire services reported OPEC+ ministers will consider production increases beyond their existing deal to meet winter demand for petroleum productions. However, several OPEC+ producers struggled to raise production in recent months due to a lack of investment and delayed maintenance. Nigeria, Kazakhstan, and Angola have reportedly missed their production target in September by at least 250,000 bpd, underdelivering on promised output increases.

Analysts at Goldman Sachs estimate the current supply-demand deficit "will not be reversed in coming months, as its scale will overwhelm both the willingness and ability for OPEC+ to ramp up production."

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