DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied in early trade Monday, sending both crude benchmarks as much as 2.5% higher, turbocharged by concerns over deepening fuel shortages across major global economies as depleted inventories and accelerated gas-to-oil switching in power generation boosted the outlook for oil demand in the fourth quarter while worries over inflation grow.

Near 7:30 a.m. ET, November West Texas Intermediate futures jumped $2.66 to trade a tad below $82 per barrel (bbl) after trading at an $82.18 seven-year high on the spot continuous chart, and the international crude benchmark Brent crude advanced $2.09 to near $84.48 bbl. NYMEX November ULSD futures rallied 5.84 cents to $2.5332 gallon, and front-month RBOB futures surged 4.21 cents or 1.8% to $2.4066 gallon.

With fuel shortages plaguing the European Union and Asia, investors are now reassessing prospects for global economic growth and market performance in the final months of the year. In the latest sign that production bottlenecks and ongoing COVID-19 pandemic will hinder growth, Goldman Sachs downgraded its forecast for the U.S. economy in 2021 and 2022. Shrinking government stimulus and "a more delayed recovery in consumer spending" are the "two challenges" to growth in the medium term, bank analysts wrote in a note to clients on Sunday.

The U.S. economy's gross domestic product is now seen expanding at a rate of 5.6% this year and 4% in 2022, according to Goldman Sachs. That is down from previous forecasts of 5.7% and 4.4%, respectively.

On Friday, U.S. Department of Labor reported domestic labor market added a less-than-expected 194,000 new jobs in September, the lowest monthly job growth rate since January. Further details of the report showed that most job losses took place in the government and public sectors, mainly in schools that might be linked to vaccine mandates and the Delta surge of coronavirus infections. Centers for Disease Control and Prevention shows COVID-19 cases plateaued around mid-September and sustained a downtrend into early October. The unemployment rate, meanwhile, fell below 5%, down 0.4% from the previous month, and the number of unemployed fell by 710,000 from the previous month to 7.7 million.

Next, investors will shift their focus to U.S. inflation data and September's retail sales on tap for release Wednesday and Friday. The consumer price index, which measures inflation across basket of common products, is expected to show consumer prices rose at roughly the same in September as the previous month, reinforcing continued persistent inflationary pressures are present even as the economic recovery rolls on. CPI in August increased 0.3% from the previous month and 5.3% from a year earlier. Some of that increase will likely come as a result of jumping energy prices, with crude oil and natural gas prices spiking amid elevated demand and tight supply over the past month. However, even excluding more volatile food and energy prices, the CPI likely still rose at a decade-high 4% annual pace.

Monday's move higher came despite a sharp increase in OPEC+ oil production last month, pushed higher by output hikes in Nigeria, Angola, Kazakhstan, and Iraq. Private survey showed that 23-nation coalition raised production by 650,000 barrels per day (bpd) last month to 36.51 million bpd, about 400,000 bpd higher than the monthly increase allowed under terms reached in July.

Much of last month's production increase came from west Africa, with Nigeria adding 160,000 bpd, and Angolan output increased by 90,000 bpd while more than 200,000 bpd below its 1.35 million bpd quota. In the Middle East, Saudi Arabia added 100,000 bpd of production last month, and Iraq raised output. On Oct. 4, OPEC+ agreed to keep its monthly production increase unchanged at 400,000 bpd for November.

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