Oil Futures End Higher on Upbeat PMIs, US Rig Count Decline

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in afternoon trade Friday, with all petroleum contacts posting modest gains this week after bullish manufacturing data in the U.S. and Eurozone showed an accelerated pace of recovery, partially offsetting news of renewed lockdown orders in India and Japan that are expected to erase a chunk of Asian oil demand in the second quarter.

Further supporting the sentiment, Baker Hughes reported Friday afternoon the number of active oil rigs in the United States declined by one from the previous week to 343, holding near a one-year high. It marks the third decline in the past 22 weeks and could indicate domestic producers are scaling back drilling activity now that oil prices have stalled near $60 barrel (bbl).

Earlier in the session, traders were focused on a slew of upbeat economic data out of the United States and Eurozone, which bodes well for recovery in fuel demand.

The preliminary reading on Eurozone's purchasing managers index showed business activity in the manufacturing sector rose to a nine-month high of 53.7 in April from 53.2 in March. Output has now risen for two straight months, with the pace of the latest expansion the second-fastest since September 2018. The services PMI index rose to 50.3 from 49.6, an eight-month high, while the manufacturing PMI rose to a record high of 63.3 from 62.5. "Pent-up spending, restocking, investment in new machinery and growing optimism about the outlook have all helped fuel a further record surge in both output and new orders," said Chris Williamson, chief business economist at IHS, in a news release.

In the U.S., composite PMI hit the record high 62.2 reading in April from 59.7 in March as the economy looks to accelerate its recovery in the second quarter. Manufacturing output jumped despite unprecedented supply chain disruptions. New order growth accelerated, including from overseas. Input prices were higher as producers increasingly seek to pass on greater costs to consumers.

The U.S. economy is now growing at a boom-like pace. The Atlanta Fed's GDPNow estimate for real gross domestic product growth in the first quarter is 8.3%. Economists expect second quarter growth could be even better -- exceeding a 10% gain.

This showed up in domestic use of gasoline and other motor fuels, with the latest demand data showing gasoline consumption jumped above 9 million barrels per day (bpd) last week -- the second time since the lockdowns were imposed over a year ago.

Despite the mostly upbeat sentiment, oil prices stumbled this week due to rising coronavirus infections and lockdowns in major oil-consuming nations such as India and Japan. India has now posted several days of record-setting COVID-19 cases, and Bloomberg reports demand for fuels could plunge by 20% in April. Given the worsening outlook, it's likely the lockdowns could be in place for several weeks or even a couple of months, according to analysts. Prime Minister Narendra Modi, however, ruled out the possibility of the second nationwide lockdown. New restrictions and the unknown nature of a second wave of COVID-19 infections believed to have been triggered by a double mutant variant will likely weigh on the recovery outlook in the short term.

On the session, NYMEX June West Texas Intermediate futures jumped above $62 bbl to settle at $62.14 bbl, and ICE June Brent futures advanced 71 cents to settle at $66.11 bbl. NYMEX May ULSD futures gained 1.27 cents for $1.8735 gallon settlement, while May RBOB futures moved up 2.10 cents or 1.5% to $1.9957 gallon.

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

Liubov Georges