WTI Futures Rally 6%

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange surged Monday, with gains led by front-month RBOB futures as market participants increased their bets that fiscal stimulus legislation in the United States would pass, which would likely accelerate an economic recovery and boost demand in the world's largest oil consumer. Late afternoon reports suggesting U.S. President Donald Trump's health has improved following his diagnosis with the coronavirus and hospitalization at the Walter Reed National Military Medical Center further fueled risk-on trade.

Global stocks rallied and the U.S. Dollar Index fell 0.37% against a basket of foreign currencies as traders returned to riskier assets at the start of the new trading week. The main agitator for the market's rally appears to be improved prospects for a new $1.5 trillion stimulus package in the United States that is still struggling with historic unemployment and mounting business failures. In the latest string of bankruptcies, the second largest movie chain the United States announced Sunday indefinite closure of all locations just two months after reopening in August.

Dimming prospects for a continued economic recovery and Trump's COVID-19 diagnosis seemed to have heightened the urgency for further coronavirus aid in Washington, D.C., after a month-long stalemate.

Wire services reported House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin held an hour-long phone call Monday and discussed "the justifications for various numbers" and plan to exchange paper Monday in preparation for another phone call Tuesday.

Trump's health condition continued to improve on Monday following his admission into Walter Reed hospital on Friday, with possible discharge date set as early as tonight. Hope that the president's COVID-19 episode would be short-lived provided some relief for markets that were hit with a wave of selling late last week sparked by news Trump and First Lady Melania Trump contracted the virus.

Oil futures were also boosted by potential disruption in Norway's oil production after energy major Equinor was forced to shut down four oil and gas producing fields, equivalent of 8% of the country's total output. Expanded workers' strike threatens to close some 22% of the Norway's production, according to Norway's Oil & Gas Association, which would be equivalent to 900,000 barrels per day (bpd).

However, the temporary drop in Norway's output is offset by rapidly increasing supplies out of Libya, with current crude output in the north African nation hitting 250,000 bpd in the most recent week, and analysts forecast production could reach up to 500,000 bpd as soon as December.

Oversupply concerns could be further exacerbated by increased production from Russia that has seen its output climb to 9.93 million bpd in September, with surging exports to China -- a trend worth monitoring in the fourth quarter.

In the short term, however, market focus will be on Tropical Depression 26, currently in the Caribbean south of Cuba. The depression is expected to steadily strengthen into hurricane status by Wednesday before making landfall along the Louisiana Coast on Friday. DTN Weather forecast confidence in the landfall location and intensity will be higher by midweek once the storm has moved into the Gulf of Mexico, potentially disrupting offshore oil and gas production.

On the session, November West Texas Intermediate futures jumped $2.17 or more than 6% to settle at $39.22 barrel (bbl), and the December Brent contract advanced $2.02 to $41.29 bbl. November ULSD futures clawed back Friday's losses, up 4.83 cents to $1.1333 gallon and November RBOB futures surged 7.06 cents or 6.5% to $1.1941 gallon. The U.S. Dollar Index slumped 0.43% against a basket of foreign currencies to trade near 93.505, lending further upside support for WTI futures.

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

Liubov Georges