DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the first trading session of March sharply higher, with the U.S. crude benchmark briefly topping $80 bbl, boosted by a retreat in the U.S. dollar index after domestic manufacturing activity contracted at a faster rate in February, spurring optimism for a sooner-than-anticipated start to a rate-cutting cycle by the Federal Reserve.

Friday's macroeconomic data releases offered some evidence that pockets of the U.S. economy could be under stronger pressure from the high-rate environment than previously thought. Domestic manufacturing activity, which closely corresponds with interest rates, contracted for the 16th straight month in February, and at a faster rate compared with the December-January period. U.S. manufacturing index, released by the Institute of Supply Management, declined to 47.8% last month, down 1.3% from the 49.1% reported in January. Readings below 50 indicate contraction. Interestingly, the Employment Index registered 45.9%, down 1.2% from January's 47.1% figure, meaning labor market conditions worsened on a monthly basis. Concerns about the labor market were front and center on consumers' minds at the start of the year, with the pair of macroeconomic reports revealing a developing softness in consumer sentiment.

"Assessments of the present conditions weakened in February, as consumers' views of both business conditions and the employment situation became less favorable. Furthermore, consumers' assessments of their personal financial situation (a measure not included in calculating the Present Situation Index) also weakened," the Conference Board said earlier this week.

Internationally, China's manufacturing purchasing managers' index also remained in contraction for the fifth straight month in February, falling towards 49.1 from December's 49.2 reading, showed data from the Bureau of Labor Statistics. The softer reading was due, in part, to the Lunar New Year holiday season, which typically weighs on the country's manufacturing activity.

Non-manufacturing PMI, which measures business activity in the services and construction sectors, climbed to 51.4 from 50.7 in January, thanks to booming travel and consumer spending patterns during the first two months of the year.

The rebound in consumer spending might have been fueled by Beijing's efforts to improve credit access and partial stimulus measures aimed at revamping economic growth. China will release its annual Gross Domestic Product growth target on Tuesday (3/5).

Underlying gains in the oil complex are expectations that OPEC+ will extend voluntary 2.2 million bpd in production cuts through the end of the second quarter along with some indication that the group could continue with curbs until the end of the year.

The 22-member coalition first announced 2.2 million bpd in voluntary supply cuts on Nov. 30, 2023, to counter a slide in oil prices amid softer demand fundamentals over the winter months. As the physical market moves into a seasonally stronger period of oil consumption during the second and third quarters, OPEC+ production cuts will likely spur global oil stock drawdowns, according to analysts.

At settlement, the new front-month May Brent futures on ICE rallied $1.64 to $83.55 bbl, while U.S. crude benchmark WTI for April delivery jumped $1.71 to $79.97 bbl. NYMEX April RBOB futures advanced $0.0334 to $2.6144 gallon after gapping $0.2632 higher on the spot continuous chart following the March contract's expiration Thursday, reflecting the transition to stricter fuel volatility specifications. New front-month April ULSD futures on NYMEX added $0.0543 to $2.7042 gallon.

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