DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied as much as 2% on Monday, sending the international crude benchmark to the highest settlement since October 2018 amid reports that some members of the Organization of the Petroleum Exporting Countries and Russia-led coalition are unable to deliver expected production increases in the final months of the year. In addition, a vaccine-led recovery in global oil demand and power shortages in China and the European Union are likely to boost winter fuel consumption.

Worrisome headlines out of the European Union once again dominated media airwaves on Monday, suggesting record run in gas prices across the 19-nation economic bloc could lead to more gas-to-oil switching in power generation. Russia's Gazprom is unlikely to boost gas deliveries into the European Union until at least Nov. 1 amid higher-than-expected domestic demand and depleted inventories, meaning the winter outlook for EU's gas prices is bullish. Furthermore, panic buying at petroleum stations in the United Kingdom over the weekend prompted the government there to suspend The Competition Act of 1998, in an attempt to ease fuel shortages.

"While there has always been and continues to be plenty of fuel at refineries and terminals, we are aware that there have been some issues with supply chains. Therefore, we will enact the Downstream Oil Protocol to ensure industry can share vital information and work together more effectively to ensure disruption is minimized," UK Business Secretary Kwasi Kwarteng said.

Upstream, several OPEC+ members last month missed their production quotas under a joint agreement to raise supplies by 400,000 barrels per day (bpd) each month through December. Delayed maintenance work and underinvestment in new production capacity undermined crude output in Nigeria, Kazakhstan, and Angola, with all three members of the coalition pumping at least 250,000 bpd below their August targets.

Together with EU's demand concerns, lower-than-expected production volumes out of OPEC+ prompted investment bank Goldman Sachs to revise higher their price outlook for the fourth quarter. Goldman Sachs economists now expect international benchmark Brent to top $90 barrel (bbl) for the fourth quarter, up $10 bbl from the previous outlook.

On the session, NYMEX November West Texas Intermediate futures surged $1.47 or 1.5% to settle at $75.45 bbl, and ICE November Brent advanced $1.44 to a fresh 35-month high settlement on the spot continuous chart at $79.20 bbl. NYMEX October ULSD futures gained 2.89 cents to settle at a $2.2960 gallon fresh 35-month spot high, and front-month RBOB futures jumped 3.62 cents to $2.2237 gallon.

Monday's higher settlements came even as the U.S. Dollar Index strengthened to 93.381 against a basket of foreign currencies following stronger-than-expected U.S. industrial data showing durable goods orders unexpectedly increased 1.8% in August versus an expected 0.6% gain. U.S. Census Bureau said Monday new orders for transportations equipment once again led the increase with a 5.5% monthly gain, followed by electrical equipment and appliances, up 1.3% from the previous month, and computers together with electronic products, up 1.4% on the month. Manufacturing data in recent weeks showed demand for durable goods remained resilient this summer even as manufacturers continue to grapple with shortages in parts and labor. Federal Reserve Bank of Chicago President Charles Evans said on Monday that most supply-side shortages should be essentially handled as the year progresses into the fourth quarter.

"We are looking at a very strong economy -- except for labor shortages -- and we're looking for those to work their way out," said Evans.

Also, on Monday Dallas Federal Reserve reported manufacturing activity in Texas expanded for the 16th consecutive month in September, up three points to 24.2 in September. Categories within the index were mixed, however, with shipments and capacity utilization expanding in September while the new orders index fell, although remaining above trend. Inflation, raw material shortages and delays, workforce challenges, and uncertainty over future tax regime were highlighted by manufacturers in Texas.

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