Oil Futures Gain on Weaker USD, China's Industrial Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved higher in early trade Tuesday, boosted by weakness in the U.S. dollar and better-than-expected industrial data for China for August, showing a recovery in the world's second largest economy is gaining traction after months of moderate growth, although forecasts for a sharper contraction in 2020 global demand due to the coronavirus pandemic capped the upside.

In early trading, October West Texas Intermediate futures advanced $0.64 to $37.90 per barrel (bbl), and ICE November Brent futures gained $0.56 to trade just above $40 bbl at $40.18 bbl. NYMEX ULSD October futures traded little changed at $1.0934 gallon and the front-month RBOB contract added 1.06 cents to $1.1174 gallon.

International Energy Agency downgraded its 2020 global oil demand forecast for the second consecutive month in September, citing a weak aviation sector, continued teleworking and resurgence of COVID-19 cases in major demand centers. The Paris-based agency now expects global demand to contract by 8.4 million barrels per day (bpd) this year, up 300,000 bbl from last month's forecast, echoing deeper cuts to demand forecasts from Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration. The IEA noted that the oncoming winter in the Northern Hemisphere adds more uncertainty to the demand outlook that "appears even more fragile" then a month ago.

In 2021, demand will grow by 5.5 million barrels per day (bpd), led by continued economic recovery in China, while India is showing renewed weakness. Overnight data out of China showed industrial output accelerated the most in eight months in August and retail sales grew for the first time this year, indicating the world's second largest economy is picking up speed.

National Bureau of Statistics reported on Monday China's industrial output jumped 5.6% in August from a year earlier, beating analyst expectations for a 5.1% growth rate. Retail sales were better than expected with a 0.5% rise on the year, snapping a seven-month downturn and beating expectations for zero growth.

Domestically, Federal Reserve will release its monthly reading on U.S. industrial output Tuesday morning, with consensus calling for a slowdown in activity to 1.2% in August from 3% growth in July. The Federal Open Market Committee will begin its two-day meeting Tuesday and address the ongoing recovery from the coronavirus pandemic and determine the near-term direction of the central bank's monetary policy. Market consensus calls for no revision to the Fed's zero interest rate policy, although some uncertainty remains around the asset purchases program. Federal Reserve Chairman Jerome Powell will give a news conference at 2 p.m. ET Wednesday.

Along the Gulf Coast, DTN WeatherOps forecasts Hurricane Sally to make landfall east of the Mississippi Delta Wednesday as a Category 2 storm, bringing heavy rainfall and flooding to the region. The approaching hurricane prompted Phillips 66 to close its 255,600 bpd Alliance refinery in Louisiana, as the hurricane's path is expected to pass west of the plant, while Chevron USA Inc. declined to comment on the status of its 356,400 bpd Pascagoula refinery in Mississippi, which is in the path of the hurricane.

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

Liubov Georges