DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed lower in overnight trade following a private survey showing crude production from Organization of the Petroleum Exporting Countries rose sharply last month and laggard members, Iraq and Nigeria, failed to comply with their pledged quotas, fueling oversupply concerns amid slow recovery in demand from coronavirus impact.

In early trading, the US crude benchmark fell 62 cents to $40.37 per barrel (bbl) and the international Brent crude contract posted a sharper drop of 77 cents to $43.30 bbl. NYMEX ULSD futures for September delivery traded down 1.64 cents at $1.2245 gallon and the front-month RBOB contract fell 0.85 cents to $1.2046 gallon. Mildly supportive of the complex, the U.S. dollar extended its decline into Tuesday morning, trading 0.1% lower at 93.458 against the basket of the foreign currency.

A Bloomberg survey found output from the 14-member cartel jumped by 900,000 barrels per day (bpd) to 23.43 million bpd last month as Saudi Arabia, Kuwait and United Arab Emirates phased out top-up voluntary supply cuts. Additionally, data showed Iraq and Nigeria made no progress in implementing their pledged cutbacks, let alone the additional curbs they had pledged in compensation for earlier noncompliance. Private shipping data suggests Nigeria's crude oil exports for September are set to hold steady at 1.59 million bpd and Iraq has increased its exports to 2.70 million bpd in July.

Russia, the biggest non-OPEC member in the alliance, also increased production in July, according to preliminary data from the Energy Ministry.

Offsetting some of those concerns, global manufacturing data shows signs of a steady recovery, albeit from a lower base. Institute of Supply Management data show U.S. manufacturers reported an increase in business activity last month to 54.2 from 52.6 in June, well above the 50-point threshold dividing expanding activity from a contraction, and the highest reading since March 2019.

A notable piece of the ISM data was new orders, which rose to 61.5 versus 56.4 in June as export sales returned to growth. Rebound in new orders and exports might suggest that August should see further output gains that will likely prove supportive for the oil complex. In the eurozone, manufacturing activity last month expanded for the first time since early 2019 as demand rebounded sharply, a survey showed on Monday.

Additionally, nearby delivery month West Texas Intermediate futures found some support from data showing the new coronavirus case count on Monday at 40,000 was the lowest daily count in nearly a month. In most of the 27 states where cases have been trending higher in the past two weeks, the trend line reversed to steady over the weekend, raising hopes new mitigating policies are yielding some results. If that trend were to continue, it might suggest policymakers can reopen schools in the fall, a move most likely to be bullish for oil prices.

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

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