Oil Futures Rally as Blowout US PMI Points to Faster Growth

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In afternoon trade Friday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange printed solid gains, with front-month West Texas Intermediate surging more than 2.5% after fresh U.S. data indicated a sharp acceleration in economic growth in May, with unemployment claims falling to the lowest point since the pandemic, consumer spending holding steady at a strong clip and business activity expanding at the fastest pace on record.

A combination of a weakening U.S. dollar this week, albeit strengthening Friday, and solid economic data out of Eurozone which showed the fastest growth in nearly three years sent oil futures decisively higher Friday. Eurozone's purchasing managers index for May showed a strong rebound across the 19-nation economic bloc, with demand for services and good-producing industries surging to a 15-year high.

Gains in the oil complex broadened and accelerated Friday after U.S. PMI for the services sector had risen from an upwardly revised 64.7 in April to a record high of 70.1 in May as more of the economy reopened and pandemic restrictions were further eased. Business activity in the manufacturing sector also advanced to a new record high of 61.5 from 60.5 in April compared with economists' expectations for a flat reading.

"Private sector firms across the U.S. signaled an unprecedented expansion in business activity in May. Growth was driven by the fastest service sector upturn on record, with the increase in manufacturing output also accelerating amid stronger client demand," according to comments accompanying the midmorning release of the data.

Interestingly, the backlog in orders in both services and manufacturing this month were eased by additional hiring, with employment rising solidly in the most recent weeks, according to the survey's responders.

The survey release coincides with a third consecutive weekly decline in new unemployment claims, with the latest data from the Labor Department showing fewer Americans are now seeking unemployment aid than at any point during the pandemic as some states end a supplemental $300 a week in federal payouts.

Twenty-two states, from Texas and Georgia to Ohio and Iowa, plan to begin blocking the supplemental federal payment for the unemployed starting in June, according to an Associated Press analysis. All have Republican governors and legislatures.

Recipients have been able to receive those benefits on top of their regular state unemployment aid. The payment, which lasts nationwide until Sept. 6, was included in President Joe Biden's $1.9 trillion financial rescue package.

Brighter outlook for the labor market could support the view that the world's largest economy is kicking into a higher gear this quarter, which bodes well for gasoline and diesel consumption. U.S. traffic volumes have almost returned to pre-pandemic levels, boosting gasoline consumption from pandemic lows.

In reaction to the bullish U.S. PMI data, the U.S. Dollar Index reversed sharply higher to end the volatile session at 90.005 after trading at 89.630, a 4 1/2-month low.

NYMEX July WTI rallied $1.64 to settle at $63.58 barrel (bbl) and the international crude benchmark Brent contract for July delivery settled above $66 at $66.44 bbl, gaining more than $1.50 on the session. NYMEX June RBOB futures advanced 2.13 cents to $2.0685 gallon, reversing off a better than three-week spot low settlement at $2.0472 gallon, while June ULSD futures gained 2.38 cents or 1.2% to settle at $1.9882 gallon.

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

Liubov Georges