DTN Oil

WASHINGTON (DTN) -- Following an explosive rally at the start of the week, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended gains into early morning hours Tuesday following the decision from the OPEC+ coalition to maintain gradual production increases into November even as global shortages of gas and coal are set to boost demand for petroleum products this winter.

Limiting upside for the oil complex, were ongoing concerns over slowing economic growth in China and eurozone, with business activity in the latter recorded a sharp deceleration in September from the summer's 15-year highs.

Overnight data out of Eurozone showed business activity across 19-nation economic bloc slowed for the second consecutive month in September, falling to the lowest reading since April at 56.2. Although still well above the 50-mark separating growth from contraction, the reading showed global supply chain stress joined rising consumer prices to further slow growth across the eurozone. At the sector level, services activity grew at a faster rate than manufacturing production for the first time since the COVID-19 pandemic started in early 2020, reflecting the latter's sensitivity to ongoing supply-related issues. Regardless, rates of growth were considerably slower than in August in both sectors.

Next, investors will be watching for the headline reading for the U.S. service sector in September to be released by the Institute of Supply Management later Tuesday morning, with consensus calling for a retreat to 60 from August's 61.7. Despite the expected slowing, if realized the reading would show an expansion in domestic services industries for the 16th consecutive month in September despite labor shortages and supply chain stress.

Early morning gains in the oil complex underpinned by the decision from Organization of the Petroleum Exporting Countries and Russia-led partners to keep measured production increases intact, shrugging at concerns over rapidly tightening oil market. The alliance currently withholds 4.6 million bpd from the global oil market, adding 400,000 barrel per day (bpd) each month until the remaining production cuts enacted in April 2020 are phased out. The decision comes as the world's biggest oil company, Saudi Aramco, said the global natural-gas shortage has boosted crude consumption by 500,000 bpd. Economists at Goldman Sachs see excess demand this winter for gas-to-oil switching at 645,000 bpd.

China and India -- the world's second and third largest oil consumers, indicated that a spike in crude prices would undermine a recovery in oil demand and speed up the transition to alternative energy sources. In China, widespread power outages have already prompted government officials to roll out various electricity rationing measures to conserve fuel ahead of the peak winter demand season.

Monday's agreement "will allow us to continue normalize the market situation," Russian Deputy Prime Minister Alexander Novak said in a speech at the meeting, part of which was broadcast by Rossiya 24 state TV channel. OPEC+ ministers will meet again on Nov. 4 to review market conditions.

In early trading, NYMEX November West Texas Intermediate futures jumped above $78 per barrel (bbl) to trade near a seven-year high on the spot continuous chart at $78.53 bbl, and ICE December Brent contract rallied to $82.39 bbl, adding more than $1 bbl in overnight trade. NYMEX November ULSD futures advanced 3.65 cents to $2.4736 gallon and front-month RBOB futures surged 2.55 cents to $2.3340 gallon.

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