DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session sharply higher, lifting the U.S. crude benchmark above $65 per barrel (bbl). The rally came after weaker-than-expected economic data fueled speculation the Federal Reserve would delay tapering its quantitative easing program until later this year, weakening the dollar index that, along with risk-on trade sentiment across financial markets, fueled buying interest.

More evidence of slowing economic growth could be found in manufacturing data released Monday morning by IHS Markit showing business activity in services and industrial sectors this month fell to the slowest pace since December 2020. Capacity constraints, difficulty in hiring qualified staff and the aggressive spread of the Delta coronavirus variant were cited as key factors behind renewed weakness across the economy.

Severe supply chain disruptions have also led to a further increase in cost burdens at private sector firms midway through the third quarter. The rate of input price inflation accelerated to the second-fastest on record, with both manufacturing and service sectors registering a quicker rise in costs. Commenting on the data, Chris Williamson, chief business economist at IHS Markit, said, "Not only have supply chain delays hit a new survey record high, but the August survey saw increasing frustrations in relation to hiring. Job growth waned to the lowest since July of last year as companies either failed to find suitable staff or existing workers switched jobs."

The recent accumulation of slowing growth, including weaker-than-expected manufacturing data and its effect on employment gains, fueled speculation that voting Fed officials who recently spoke in hawkish terms on monetary policy would reconsider aggressive tapering of $120 billion in monthly purchases of Treasuries and mortgage-backed securities.

Last week, Dallas Federal Reserve Bank President Robert Kaplan suggested he might readjust his stance on rolling back the central bank's support for the economy when the Federal Open Market Committee meets next on Sept. 21-22 should rising coronavirus cases further subdue business and consumer activity.

The comments come ahead of the Federal Reserve's annual Jackson Hole symposium that begins Thursday, Aug. 27, with a keynote address from Fed Chairman Jerome Powell scheduled for Friday. The theme of this year's retreat, which will be held virtually "due to the recently-elevated COVID-19 health risk level," is "Macroeconomic Policy in an Uneven Economy."

Oil complex was further lent support by bullish economic data out of the European Union, where business activity in August continued to grow at a strong monthly rate despite cooling slightly amid widespread supply chain delays and concerns over the Delta spread.

The headline IHS Markit Eurozone Composite PMI eased from a 15-year high 60.2 in July to 59.5 in August, according to the "flash" reading. The latest figure matched that seen in June to register the second-fastest expansion seen since 2006. Service sector growth exceeded that of manufacturing for the first time since the pandemic, buoyed by the further reopening of the economy. While business confidence was subdued by rising concerns over the Delta variant, hiring remained at the strongest pace for 21 years as firms boosted capacity to meet rising demand.

On the session, U.S. dollar declined 0.54% against a basket of foreign currencies to settle below 93 at 92.971, lending upside buying support for West Texas Intermediate futures.

NYMEX October WTI rallied $3.50 or 5.6% to $65.64 per barrel (bbl), and Brent crude for October delivery surged $3.57 to $68.75 per bbl. NYMEX September ULSD advanced more than 9 cents to $2.0051 gallon, and September RBOB futures added 9.96 cents for a $2.1232-per-gallon settlement.

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