DTN Oil

WASHINGTON, D.C. (DTN) -- With U.S. dollar sliding against foreign currencies, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in choppy trading Monday as investors parsed through a mixed batch of U.S. macroeconomic data that showed the persistent impact of high inflation on economic growth and slowing consumer demand.

Oil markets are likely to remain rangebound this week ahead of the Federal Open Market Committee's meeting on May 2-3 unless there are material changes on the demand side coming through in macroeconomic data releases between now and then.

The Dallas Federal Reserve Manufacturing Survey released this morning showed industrial activity in the region turned mixed in April after a slight upswing recorded in the prior month as the business outlook remained deeply negative. The general business activity index dropped eight points to a negative 23.4 -- its lowest reading in nine months.

"There is a definite slowdown. New orders virtually stopped. We are hoping it is short lived," said a representative with a machinery manufacturer.

"We are in the trucking industry. There has been some continued degradation of indicators in our market, such as dropping freight rates. We are still planning on a solid business year but with some decrease compared with the past 12 months," said a representative with a transportation equipment manufacturer.

This follows Friday's release of U.S. manufacturing index from S&P Global that showed a surprise expansion in the national manufacturing activity for the first time in seven months. Output rose at the sharpest pace for almost a year, supported by stronger demand conditions, improving supply and a steeper uptick in new orders. Solid growth in activity was seen across both the manufacturing and service sectors.

"The latest survey adds to signs that business activity has regained growth momentum after contracting over the seven months to January. The latest reading is indicative of GDP growing at an annualized rate of just over 2%," commented Chris Williamson, chief business economist at S&P Global Market Intelligence, on Friday.

The Federal Reserve of Atlanta GDPNow tracker shows the economy grew at an annualized rate of 2.5% in the first quarter, up from just 0.5% seen at the end of March. The survey also follows a surprise acceleration in manufacturing activity across New York State, with the Empire State Manufacturing Index jumping out of contraction to the highest point since July 2022. This bodes well for distillate fuel oil consumption, which has rebounded somewhat in recent weeks, with the four-week average demand climbing to 5% above the year-ago consumption rate. Oil traders pay close attention to manufacturing data given the energy-intensive nature of the industrial sector versus private consumption that has grown increasingly energy-efficient in recent years.

It's worth noting that one data point cannot tell the full picture and there are plenty of macroeconomic indicators pointing to weakness, but it certainly raises the possibility that the Federal Reserve's rate hiking cycle won't end on May 3. The market is pricing in a 90% chance for a 25-basis point increase in the federal funds rate when FOMC meets next week and is now pricing in a modest chance for another rate hike on June 14.

At settlement, NYMEX June West Texas Intermediate futures advanced $0.89 to $78.76 bbl, helped by afternoon losses in U.S. dollar index that nosedived 0.47% against a basket of foreign currencies to finish at 101.073. International crude benchmark ICE Brent futures for June delivery rallied $1.07 to $82.73 bbl. NYMEX May RBOB futures gained to $2.6318 gallon, up $0.0302 and May ULSD futures climbed $0.0424 for a $2.5310 gallon settlement.