Crude Oil Futures Climb to 6-Week Highs

WASHINGTON (DTN) -- Crude and product futures on the New York Mercantile Exchange and Intercontinental Exchange continued higher on Tuesday, with both crude benchmarks gaining more than 1%. The gains came after the U.S. service index rebounded sharply in October, boosting the outlook for the economy and fuel demand, while markets remain upbeat over the prospect the United States and China would ink a trade deal this month.

Tuesday afternoon, markets also await a fresh dataset on last week's change in U.S. commercial crude and products inventories. DTN projects domestic crude stocks increased 2.1 million barrels (bbl) during the week ended Nov. 1, while gasoline and distillate supply are seen to have been drawn by 2.7 million bbl and 1.9 million bbl, respectively. Refinery runs are projected to have gained nearly 0.6% during the week reviewed.

American Petroleum Institute will release its supply estimates 4:30 p.m. EST, while U.S. Energy Information Administration is set to publish official figures 10:30 a.m. EST Wednesday.

NYMEX December West Texas Intermediate futures settled up $0.69 at $57.23 per bbl and the ICE January Brent contract climbed $0.83 to a $62.96 per bbl settlement, with both crude benchmarks ending at six-week highs on the spot continuous chart. NYMEX December ULSD futures increased 1.61 cents to $1.9566 gallon and NYMEX December RBOB futures ended the session 1.09 cents higher at $1.6746 gallon.

Institute of Supply Management reported Tuesday nonmanufacturing business activity in the United States surged 2.1 points last month to 54.7, bouncing off a three-year-low reading in September. The bullish reading on services added to the market's overall sentiment that U.S. economy is nowhere near recession, easing fears of a slowdown that dominated the narrative over the past few months.

U.S.-China trade talks increasingly appear possible to produce some sort of a deal to be signed later this month, calming markets and improving the outlook for global trade and the world economy. Earlier reports indicated China requested the White House to remove the 15% tariff on around $112 billion worth of goods imposed on Sept. 1, and Washington is considering doing so. The Wall Street Journal reported China's President Xi Jinping pledged to open China's economy and enhance the protection of intellectual property, a major sticking point in talks between the two countries.

A summit between U.S. President Donald Trump and Xi may take place on U.S. soil.

Separately, the Organization of the Petroleum Exporting Countries said Tuesday its crude production will continuously decline in the next five years, partly due to the 13-member cartel's efforts to offset rising supplies of non-OPEC origin.

In its annual World Oil Outlook, OPEC projects its production will fall by 2.2 million barrels per day (bpd) to 32.8 million bpd in 2024, as producers outside the block will increase their supply by 9.9 million bpd through 2024, aggressively growing their market share.

Namely, U.S. shale oil will continue to defy expectations through 2024, expanding an unprecedented 6.7 million bpd to 16.9 million bpd, but is expected to begin to slow thereafter, showing only modest increases and peaking at 17.4 million bpd in 2029. By 2040, U.S. tight oil production is seen to average at 14.5 million bpd.

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

(CZ)