Oil Futures Gain as Traders Watch OPEC, Manufacturing Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- On the first trading day of March, crude and refined products futures on the New York Mercantile Exchange and Brent contact on the Intercontinental Exchange moved higher in concert with surging equities and retreating bond yields after the House of Representatives passed President Joe Biden's $1.9 trillion fiscal relief package, boosting expectations for increased liquidity to further fuel an economic recovery in the second and third quarters, while manufacturing data from China and Eurozone signal continued expansion as daily vaccinations pick up pace.

Data from the Centers for Disease Control and Prevention reported more than 75 million vaccine doses have been administered in the United States to date, with more than 50% of the population over the age of 65 receiving at least one shot of the vaccine produced by either Pfizer or Moderna. In the last week, an average rate of daily inoculations stood at 1.74 million doses, a sharp increase from the 1.3 million doses mid-February. With a third vaccine from Johnson & Johnson now approved by the Food and Drug Administration over the weekend, the daily inoculation rate will likely exceed 2 million doses this month, according to analysts.

The prospects of an early end to the pandemic combined with the likely passage of additional stimulus in the United States pushed equity futures sharply higher early Monday while global bond yields pulled back.

Futures contracts tied to the Dow Jones Industrial Average suggest a 336-point opening bell gain, while those linked to the broader S&P 500 are priced for a 44-point advance. U.S. Dollar Index continued to strengthen after Friday's strong rebound, moving above 91 to trade at 91.080 against a basket of foreign currencies, up 0.22%.

Overnight reports suggest Biden could lower the income cap for Americans eligible to receive a third round of stimulus checks as the mammoth legislation faces a vote in the U.S. Senate this week. Biden's $1.9 trillion stimulus plan in its current form includes $1,400 individual checks for Americans earning up to $75,000 a year, an extension of unemployment benefits, and aid to local and state governments.

Some economists and policymakers argue however that injecting nearly $2 trillion into a growing economy will unleash inflationary pressures that we haven't seen for decades. Last week's rise in U.S. treasury yields heightened those concerns as the economy shows signs of a steady recovery and the vaccination rate accelerates.

Investors will get a fresh update on the state of U.S. manufacturing industry at 10:00 a.m. ET, with the Institute of Supply Management's index expected to show a modest improvement from the previous month to a reading of 58.9. Overnight data from the Eurozone and China showed industrial output continued to expand in the world's two largest manufacturing hubs. Eurozone PMI Manufacturing was finalized at a three-year high of 57.9 for February, up from January's 54.8 reading, heightening optimism for the recovery.

China's manufacturing activity, however, weakened for a third month in February as exports and new orders declined, according to two surveys released Monday. The monthly purchasing managers' index issued by Caixin declined to 50.9 from January's 51.5, while still indicating an expansion.

The market is now looking toward Thursday's meeting among members of the Organization of the Petroleum Exporting Countries and Russia-led partners, which is expected to offer guidance into the coalition's production plan going forward. CME Group's OPEC Watch Tool shows traders bet that the group will likely maintain output cuts at the current level of 7.05 million barrels per day (bpd) though March 31 (71.85%), with only 19.13% expecting producers will raise their production cap. Speculation around Saudi Arabia's unilateral cut of 1 million bpd is more complex, however, with the kingdom indicating it will likely phase out voluntary reductions beginning April 1.

In early trade, WTI futures for April delivery added 80 cents to trade near $62.35 per barrel (bbl) and the May Brent contract on ICE advanced 85 cents to near $65.25 bbl. NYMEX April ULSD futures gained 1.8 cents to near $1.8610 gallon and the front-month RBOB contract rallied 2.95 cents to $1.98 gallon.

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

Liubov Georges