DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and the December Brent contract on the Intercontinental Exchange settled Friday a tad lower as investors sorted through mixed economic data out of the United States, highlighting an increasingly uneven recovery in the world's largest economy, and tightening quarantine measures across European Union that are likely to undermine global demand recovery into the fourth quarter.

Further weighing on prices, the number of drilling rigs searching for oil in the United States increased for the fourth straight week through Oct. 16, posting the largest week-on-week increase since Jan. 17 at 12 new rigs deployed, said Baker Hughes. The active rig count now stands at the highest since the week ended June 5 at 205, indicating activity in the sector shows some signs of a modest rebound.

November West Texas Intermediate futures finished little changed at $40.88 barrel (bbl) and the December Brent contract slipped 23 cents to $42.93 bbl. NYMEX November ULSD futures declined 99 cents to $1.1791 gallon and November RBOB futures fell 1.12 cents to $1.1688 gallon.

The U.S. Dollar Index, which trades against a basket of six global currencies, was last marked 0.16% lower at 93. 705.

Markets grew increasingly anxious this week over the rising tally in Europe's COVID-19 infection rate, having led to stricter quarantine restrictions and renewed lockdowns for the first time since March. The United Kingdom, in particular, looks to have been hit the hardest, with nearly half of the country's population now under some sort of curfew and/or partial lockdown. The second wave of infections and the lack of an effective vaccine remain two major risks for the ongoing recovery in global oil demand that already is seen as lagging behind expectations.

During a technical meeting this week, OPEC+ ministers expressed their concerns that oil demand hasn't picked up as quickly as expected in the third quarter, suggesting producers unlikely to taper current 7.7 million barrels per day (bpd) cuts by a scheduled 2 million bpd in the beginning of the next year. According to the schedule of the agreement, OPEC+ coalition is set to ease cumulative production to 5.7 million bpd on Jan.1, 2021.

Earlier this week, OPEC revised lower their global demand estimates for 2020 to 90.3 million bpd on a 9.5 million bpd annualized drop on weaker-than-expected demand for transportation fuels in the United States and parts of Europe over the summer. For 2021, OPEC adjusted their demand projection lower by 80,000 bpd to 96.84 million bpd.

Domestically, stocks on Wall Street surged and the U.S. dollar retreated to near 93.7 after retail sales for September grew at 1.6% to a new record-high $549.256 billion, beating the most bullish expectations. Furthermore, consumer sentiment from the University of Michigan came at better-than-expected 81.2 in October, a fresh 7-month high, boosted by optimism over economic prospects for the year ahead.

Offsetting this optimism, U.S. first-time unemployment claims unexpectedly jumped from the previous week to 898,000, indicating employers continue to lay-off workers amid the lack of fiscal stimulus from Washington.

U.S. gasoline demand that typically has a high correlation with the health of the labor market and discretionary spending is unlikely to recover to its pre-pandemic levels anytime soon. EIA data shows gasoline demand is down 13.1% cumulatively in 2020 through Oct. 9 against the comparable year-ago period, although only 7.5% lower during the most recent 4-week period. Upside for the RBOB futures is likely restrained until the employment situation shows improvement.

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

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