DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved higher in early trading on the first day of November following reports indicating Organization of the Petroleum Exporting Countries and Russia-led partners intend to wave through a planned production increase of 400,000 barrels per day (bpd) next month despite calls for the group to more aggressively increase output, while market participants await the release of the key manufacturing data domestically for additional clues on the economy's post-pandemic recovery.

Near 7:30 a.m. ET, NYMEX West Texas Intermediate futures for December delivery gained $0.24 to trade near $83.82 per barrel (bbl), and the new front-month ICE January Brent contract advanced to $84.27 bbl, up $0.57 in overnight trading. NYMEX RBOB December futures advanced 1.99 cents to $2.3896 gallon and NYMEX ULSD December futures gained 1.05 cents to $2.4900 gallon.

Monday's move higher in the oil markets is supported by a weakening U.S. Dollar Index that reversed off its highest level since mid-October at 94.310 overnight. At last look, greenback in trading against a basket of foreign currencies slipped to 94.060 cents as traders position ahead of Monday morning's release of U.S. manufacturing data from the Institute of Supply Management on tap for 10 a.m. ET release.

Business activity in the manufacturing sector likely declined 0.8 points last month from 61.1 seen in September, according to analysts. Faced with rising purchasing prices and longer delivery times, U.S. factory output in September fell by the most in seven months, which might lead to a weaker-than-expected reading for the last month as well.

Against this backdrop, Federal Open Market Committee will begin its two-day policy meeting on Tuesday, with expectations for Fed officials to announce tapering of $120 billion a month in bond-buying stimulus that have been holding down market interest rates since the peak of the pandemic. The $120 billion in monthly purchases, including $80 billion in monthly Treasury purchases and $40 billion in government-backed mortgage securities would be cut back to zero by mid-2022, according to central bank officials. In recent weeks, a growing number of hawkish Federal Reserve officials voiced their support for lifting interest rates as early as next year.

"The next several months are critical for assessing whether high inflation numbers we have seen are transitory," Fed governor Christopher Waller said on Oct. 19. "If monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022."

Goldman Sachs forecast the central bank would begin hiking interest rates in July 2022 from the previous forecast of the third quarter 2023.

Also this week, OPEC+ will decide on next month's production increases, with expectations for the group to raise their collective output by 400,000 bpd as agreed to in July. Over the weekend, Angolan oil minister and OPEC president Diamantino Azevedo said he sees "no need to deviate" from the current plan as the market is projected to be in balance by the end of the year. He added the group accepts that uncertainties over COVID-19 variants continue to cloud demand forecasts, while he dismissed calls for a bigger hike, saying the recent price increases have been driven by "shortages in coal and gas but not by a shortage of oil." This sentiment has been echoed by oil ministers of Saudi Arabia, Iraq, and Kuwait.

"Iraq sees that this output increase will reach 2 million bpd by the end of the year. It will absorb any increase in demand and lead to the stability of the oil market," Iraqi oil minister Ihsan Ismail said in a statement to the state-run Iraq News Agency on Oct. 30.

Ahead of Thursday's ministerial meeting, the OPEC+ technical panel revised lower their expectations for how tight the global oil market will be in the fourth quarter, with a global supply deficit now seen at just 300,000 bpd in the three months ending in December. That's much smaller than the 1.1 million bpd shortfall projected earlier this month.

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