Oil Futures Surge on Bullish Economy

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange rallied on Tuesday, with both crude benchmarks advancing to the highest settlements in seven months. The Federal Reserve at midmorning released their monthly report on U.S. industrial production, showing a strong rebound in output in November, lifting market sentiment for stronger economic growth in 2020 that boosts the outlook for oil demand.

The oil complex was also supported by expectations crude stocks in the United States declined by a hefty 2.5 million barrels (bbl) during the week ended Dec. 13, with calls for refinery run rates to reverse higher following an unexpected decline in late November. For refined products, the market expects gasoline stocks to have risen 2.4 million bbl and distillate stockpiles to have added 600,000 bbl to inventory during the profiled week.

The American Petroleum Institute will release its data 4:30 p.m. EST, followed by official figures from U.S. Energy Information Administration 10:30 a.m. EST Wednesday.

At settlement, NYMEX January WTI futures surged $0.73 to $60.94 bbl -- the highest settlement since the week of May 24, with the February contract maintaining a $0.07 discount in the backwardated market. The January contract expires Thursday afternoon.

ICE February Brent advanced $0.76 to a $66.10 bbl settlement.

NYMEX January ULSD futures spiked 2.89 cents to $2.0334 gallon, the highest settlement on the spot continuous chart in three months. The January RBOB contract gained 2.3 cents to a $1.6857 gallon settlement.

Oil futures rose across the board Tuesday after U.S. industrial production advanced 1.1% last month, beating market expectations and reversing two months of declines.

Even as some rebound was likely following a prolonged strike at General Motors earlier in the fall, the bullish reading eased concerns over stagnation of the domestic manufacturing sector. The Federal Reserve this morning reported a strong production surge across all major industries, including consumer durables, energy products and defense equipment. Adding to the bullishness, U.S. Purchasing Manufacturing Index also posted a modest improvement in a preliminary reading this month, rising further above the 50 mark that separates growth from contraction.

Markets seem increasingly bullish about the outlook for global economic growth next year, with sentiment spurred by the de-escalation in U.S.-China trade tensions and strong employment data from the United States, while manufacturing sectors across the globe seem to show signs of a modest recovery.

Bank of America Merrill Lynch on Tuesday did warn the market is "primed for Q1 2020 risk asset melt-up," which is described as the end phase of an overvalued asset bubble, usually followed by a downturn in the stock market.

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

(CZ)

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