Oil Futures Rally on Manufacturing Strength

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange reversed off 5-month lows to rally into Monday's close, pushing up values on the first business day of November on strong manufacturing data from around the world that improved sentiment, although concern over lost demand amid another round of coronavirus-caused lockdowns in the European Union and uncertainty surrounding U.S. presidential elections remain a concern.

So far, 94 million people have voted in the U.S. presidential election according to the U.S. Elections Project, 69% of the 136 million total votes during the 2016 election, with the race tightening ahead of election day Tuesday. There's a great deal of uncertainty about whether a winner will be declared Tuesday night, which is adding to market volatility, especially if the election is disputed.

The Chicago Board of Exchange's crude oil volatility index eased Monday afternoon after reaching 70.66, the highest volatility rating since mid-June, with the VIX elevated, but easing from Friday's 36.5 8-week high. The Bank of China said Monday it could restrict trading of precious metals and foreign exchange products if the U.S. presidential election triggers market volatility.

Oil futures were pulled off their lows on gains in manufacturing reported on three continents, with the Institute of Supply Management's manufacturing index surging 3.9% to 59.3% for October, well above market consensus for a 55.7% reading.

"This figure indicates expansion in the overall economy for the sixth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth," said Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee.

New orders surged 7.7% to 67.9%, the highest reading since January 2004.

The strength in U.S. manufacturing reverberated globally, with the eurozone manufacturing purchasing managers' index up 1.1 points at 54.8 driven by a 1.8-point surge in Germany to 58.2. Manufacturing activity accelerated in China in October based on the Caixin Manufacturing PMI, with the reading up from 53 in September to a more-than-expected 53.6 last month and surged 2.1 points to 58.9 in India.

It's not clear if bullish manufacturing activity in the United States would have reversed a slowing trend in new employment, with the Department of Labor's nonfarm payroll report due out Friday morning expected to show 600,000 new jobs were added in October, down from job growth of 661,000 in September. Market estimates are wide, from 450,000 job gains to 850,000. The national unemployment report is expected to report a 0.2% decline to 7.9%.

Settling at 3-day highs, NYMEX December West Texas Intermediate futures reversed off a $33.64 low to end up $1.02 at $36.81 barrel (bbl), and the January Brent contract on ICE gained $1.03 with a $38.97 bbl settlement after trading at a $35.74 low. NYMEX December ULSD futures advanced 2.64 cents to $1.1123 gallon after slumping to $1.0252, and the December RBOB contract ended up 1.98 cents at $1.0520 gallon after falling below $1 to $0.9702 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne