Oil Futures Pop Higher on Weaker USD, Rally in Equities

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and July Brent crude on the Intercontinental Exchange posted sharp gains for the opening trading session in May, climbing alongside a rally in equities and on a weaker U.S. dollar on bullish economic data for both the United States and Eurozone.

The Dow Jones Industrial Average gained 238.38 points to end at 34,113 after nearing the record intraday high of 34,256.75 reached April 16, with the S&P 500 Index up a smaller 0.3% to just below 4,200. The U.S. Dollar Index reversed off a better than one-week high 91.335 traded overnight, falling to an intraday low 90.845 midmorning in response to bullish U.S. economic data that was, nonetheless, below expectations. The dollar index settled down 0.343 at 90.927.

After trading on either side of unchanged in early activity, June West Texas Intermediate futures rallied midmorning with a weaker U.S. dollar after the Institute of Supply Management reported its manufacturing index grew for the 11th consecutive month in April at 60.7, although down 4% from March's index which was the highest since December 1983.

Spending on construction in the United States in March also missed consensus with a 0.2% month-on-month gain versus expectations for a 2% increase, while up 5.3% year-on-year.

Both data points highlight supply chain constraints, raw material shortages and tight labor market conditions that are limiting growth while increasing costs. ISM reported all 18 manufacturing industries grew in April, while new orders increased and inventories fell. Demand is strong, with manufacturers unable to keep up with customer orders.

Bullish U.S. economic data is expected to continue through the week, with the ISM Service Index released Wednesday expected to show a 0.5% gain to 64.2 after a strong March, with readings above 50 indicating growth. The Department of Labor on Thursday will release weekly initial unemployment claims filings that are expected to continue trending lower, seen down 20,000 to 533,000 for the week ended May 1. On Friday, the Labor Department will release its nonfarm payroll report with 938,000 new jobs expected for April following job growth of 916,000 in March, while the official national unemployment rate is seen ticking down 0.2% to 5.8%.

U.S. economic data followed bullish overnight readings on manufacturing in Europe, with the Eurozone's manufacturing Purchasing Manager's Index up 0.4 points to a 62.9 record high, with the series beginning in June 1997. Germany's manufacturing PMI was a strong 66.2 with March retail sales in Germany surprising to the upside, up 7.7% from February despite lockdowns amid a third wave of COVID-19 infections. Europe's data also follows recession for the six-month period ended in March, suggesting the world's largest collective economy is emerging from the pandemic.

Capping further upside in oil futures remained concern over ballooning COVID-19 infections in India, with new infections hovering just below 400,000 per day. A new variant has emerged from India that has been detected in China and Indonesia, heightening anxiety over a growing wave of new cases in Asia that could prompt increased travel restrictions and lower fuel demand. New U.S. travel restrictions to India take effect Tuesday.

NYMEX June WTI futures settled up $0.91 at $64.49 barrel (bbl), with ICE July Brent gaining $0.80 with a $67.56 bbl settlement. NYMEX June RBOB futures advanced 2.52 cents to a $2.1015 gallon settlement in the backwardated market, while June ULSD futures rallied 2.95 cents to $1.9519 gallon.

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

Brian Milne