DTN Oil

WASHINGTON (DTN) -- Reversing earlier gains, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange on the first day of March settled sharply lower, with prompt-month West Texas Intermediate dropping back below $61 barrel (bbl), weighed down by a strengthening U.S. dollar and concern Organization of the Petroleum Exporting Countries together with their Russia-led partners would raise production more than expected at their policy meeting later this week.

The U.S. Dollar Index added to Friday's strong advance and managed to reclaim the area just above 91.00 after the key reading on domestic manufacturing showed another month of robust growth in February. At 60.8%, Institute of Supply Management's manufacturing index rose for the ninth consecutive month in February after a three-month contraction from March through May last year, with growth accelerating across all subcategories, including employment and prices. Spurred by the upbeat data and the likely passage of $1.9 trillion stimulus in the Senate early this month, the Dow Jones Industrials soared nearly 700 points Monday -- the largest one-day increase in over four months. The risk-on sentiment in financial markets, however, failed to boost oil futures in afternoon trade Monday, with both crude benchmarks closing out the session lower.

NYMEX WTI April crude declined 86 cents or 1.5% to settle at $60.64 bbl and May Brent futures on ICE fell 73 cents to $63.69 bbl. NYMEX April ULSD contract dropped 2.39 cents or more than 1% for a $1.8192 gallon settlement and front-month RBOB eased 0.76 cents to $1.9429 gallon.

Monday's lower session comes as oil traders position ahead of the upcoming meeting among the OPEC+ ministers scheduled for Thursday, March 4, when the group will decide on production quotas for April. While consensus calls for a modest 500,000 barrels per day (bpd) increase from the current 7.05 million bpd level, it remains unclear whether the group has an agreement on how much supply the market can absorb in the second quarter. Saudi Arabia must also decide whether to maintain its voluntary 1 million bpd cut currently scheduled to end after March. Should the Saudis opt for a phase out as they have indicated last month, the market could face a 1.5 million bpd production increase at once in less than 30 days. This certainly has a potential to spook traders and unravel the bullish market run of the past two months.

Additionally, there are now concerns demand in China and India might disappoint in coming months amid a sluggish vaccine rollout for the region and ongoing flare-ups in COVID-19 infections. Physical markets were buoyed last year by China's push to stock up crude reserves at low global prices, with Beijing importing at record levels through the second half of 2020. Wire services reported China's oil stockpiles have now risen to around 100 days worth of net imports, mitigating the need for storing extra barrels. Furthermore, China's manufacturing output has declined for three months in a row, missing most analyst expectations in February, as tightening restrictions on mobility and businesses hammered at economic activity.

Domestically, data from the Centers for Disease Control and Prevention reported more than 75 million vaccine doses have been administered since the onset of the immunization program on Dec. 14, with last week's inoculation rate averaging 1.74 million doses a day, a sharp increase from the 1.3 million doses averaged in 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.

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