CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Intercontinental Exchange Brent crude futures settled another choppy session higher, as traders pushed past slowing manufacturing in the United States and global economic headwinds to focus on production cuts by the Organization of the Petroleum Exporting Countries, namely a large decline in Saudi Arabia's output rate in December.
Thursday's upside push also follows a strong employment report from ADP Research Institute, with the payroll services provider reporting 271,000 jobs were created in December with 89,000 of those positions in small businesses. The ADP report precedes the non-farm employment report from the Labor Department to be released Friday morning, with a market consensus calling for 180,000 jobs to have been created in December and for the national unemployment rate to hold at a 3.7% 49-year low.
That helped take the sting out of a 5.2% drop in the Institute of Supply Management's manufacturing index in December to 54.1% released Thursday, with new orders plunging 11% to 51.1%. Readings above 50% indicate expansion, so the U.S. manufacturing sector is still growing, albeit at a slower pace. Business executives repeatedly commented that tariffs between the United States and China have clouded the forward outlook that is having a knock-on effect in business capital spending plans.
The ISM report added to the mountain of data showing the U.S./China trade dispute is dampening economic growth, with China's industrial sector moving into contraction in December. Apple cuts its first quarter revenue guidance Wednesday, citing slowing economic growth in China.
Still, oil futures, which tumbled to new multi-month lows during light volume trading during the Christmas holiday, muscled past concern over economic growth, turning their gaze to a 420,000 barrel per day (bpd) crude production cut by Saudi Arabia in December and a drop in exports to the United States and China reported by Bloomberg Wednesday. The decline, which came from record output at more than 11.0 million bpd in November, suggests Saudi Arabia will do what it takes to ensure compliance with a production agreement reached last month in Vienna.
OPEC, Russia and nine non-OPEC oil producers agreed to cut 1.2 million bpd in output through the end of June, with the production cuts taking effect on Tuesday. Of that total, OPEC will cut 800,000 bpd, with 250,000 bpd of the reduction to come from the Saudis.
A 120,000-bpd production decline in Iran that lowered output to a three-year low in December also suggests U.S. sanctions on Iranian oil exports are having an effect despite 180-day waivers given to eight countries, including Iran's biggest buyers. Lost supply from Libya also lent upside support for oil futures, with Brent's premium to West Texas Intermediate widening to a two-week high at $8.86 barrels (bbl).
Despite Thursday's volatility, oil futures held to inside trade. Nymex February WTI futures settled up $0.55 at $47.09 bbl and ICE March Brent ended with a $1.04 gain at $55.95 bbl. Nymex February ULSD futures settled up 4.14 cents at $1.7420 gallon, and February RBOB futures settled 2.39 cents higher at $1.3495 gallon.
Thursday's advance comes ahead of the afternoon release of American Petroleum Institute's supply report for the week-ended Dec. 28, and the weekly release of supply data from the Energy Information Administration set for publication 11 a.m. ET Friday.
The market expects U.S. commercial crude stocks to have declined by 2.5 million bbl for the week profiled, and for gasoline inventory to have increased by 1.5 million bbl. Distillate stocks are estimated to have increased by 500,000 bbl during the final full week of 2018.
Brian Milne can be reached at firstname.lastname@example.org
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