Crude Rallies on Economic Optimism

WASHINGTON (DTN) -- Crude and product futures on the New York Mercantile Exchange and Intercontinental Exchange advanced in early trade Monday after Friday's upbeat U.S. employment data and renewed hope the U.S.-China trade war may be closer to resolution, reigniting bullish sentiment and lifting both crude benchmarks to six-week highs.

Near 8:20 a.m. EST, NYMEX December West Texas Intermediate futures gained $0.62 to $56.82 barrel (bbl), while the ICE January Brent contract was up $0.63 near $62.32 bbl. NYMEX December ULSD futures increased 2.5 cents to near $1.9581 gallon and NYMEX December RBOB futures moved up 1.39 cents to $1.6696 gallon.

An unexpectedly bullish jobs report, looser monetary policy and fresh trade optimism all contributed to strong gains in equities and oil futures late last week, fueling investors' appetite for risk-on trade. On Monday, the oil complex continued higher, once again drawing support from much better-than-expected U.S. employment data and positive comments from U.S. and China officials on the progress of a trade deal.

Markets were generally upbeat after U.S. economic adviser Larry Kudlow said the long-awaited phase 1 trade deal could be signed in November, while both the United States and China pointed to substantial progress towards defusing the 16-month-long trade war.

Oil futures were also aided by a continued decline in the U.S. oil rig count, down five to a new 30-month low at 691 last week, with 22 rigs taken out of service in the fourth quarter. Multiple forecasts indicate U.S. crude production is bound to decline in the coming months, as independent producers find it harder to fund continued drilling activity.

Separately, Saudi Aramco launched its Initial Public Offering over the weekend after months of postponements. According to wire services, at this early stage Aramco aims to sell 2% to 5% of its shares in the IPO, depending on demand, as inventors keep a close eye on further details of the initial offering.

Overnight reports also indicate antigovernment protests in Iraq blocked the country's main Gulf port Umm Qasr and Majnoon oilfield near the key city of Basra on Saturday. Iraq is the second largest oil producer within Organization of the Petroleum Exporting Countries, with crude exports reaching 3.445 million bpd in October. Iraq's crude exports mostly take place at offshore platforms and so far have not been interrupted, but port's officials indicated further escalation likely will affect the flow of commodities. The situation remains fluid.

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

(CZ)