DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent crude contract on the Intercontinental Exchange rallied in early trade Monday, reaching fresh multiyear highs amid energy shortages in Europe and Asia, while in the United States, consumer spending remained strong in September despite growing inflation concerns.

In early trading, NYMEX West Texas Intermediate futures for November delivery were up more than $1.20 near $83.50, trading near an $83.87 fresh seven-year high on the spot continuous chart ahead of the November contract's expiration on Wednesday afternoon. December WTI futures are trading at a $0.65 discount to the front-month contract in the backwardated market. December Brent futures on ICE punched above $86 with an $86.04 print, with only the $86.74 2018 high standing between the overnight high and a seven-year high on the spot continuous chart.

Both oil products contracts traded at fresh highs overnight, with NYMEX November ULSD futures up more than 2 cents near $2.5950 gallon, and November RBOB futures 2 cents higher near $2.5065 gallon. The gasoline contract is now higher for an eighth consecutive session.

In the United States, the Federal Reserve will release the central bank's reading on industrial production later Monday morning, which is expected to have slipped from a 0.4% increase in August to 0.2% in September, with manufacturing output seen to have ticked higher from 0.2% to 0.3%. The effects of Hurricane Ida, which made landfall Aug. 29 along the Louisiana coastline, is seen to have slowed industrial production activity late in the third quarter.

China's economy grew at an annualized rate of 4.9% in the third quarter, the National Bureau of Statistics reported overnight, missing expectations for a 5.2% expansion for the three-month period, with a 3.1% increase in industrial production for September well below consensus for a 4.5% growth rate.

The 4.9% increase in gross domestic product was the weakest annual growth rate since the third quarter 2020 when China was recovering from the COVID-19 pandemic, the origin of the virus, which hit the world's second largest economy first. Slumping growth in the most recent quarter reflects trouble in China's real estate sector with its mountain of debt, and sharply reduced industrial output amid a power shortage that has forced factories to reduce operations. During an emergency meeting in late September, China's Vice Premier Han Zheng, who oversees the country's energy sector and industrial production, directed the country's energy companies to secure enough energy for the winter at all costs.

Global natural gas prices reached record highs in October amid acute coal shortages in China and India, and low gas stocks in much of the European Union, which increasingly depend upon gas after closing a slew of coal plants to meet climate change goals. The energy shortage in Asia and the European Union is expected to worsen in the coming months, especially if the winter is colder-than-usual, prompting gas-to-oil switching that is expected to add 500,000 barrels per day (bpd) to more than 1 million bpd of demand for crude oil this winter.

Gazprom, operator of the 759-mile Nord Stream 2 gas pipeline that runs under the Baltic Sea from Ust-Luga, Russia, to Lubmin, Germany, near Greifswald, earlier Monday said the first of the project's two lines has been filled with technical gas, according to Reuters. The Nord Stream 2 pipeline awaits certification from the EU before it can begin selling gas to customers in Europe. The process can take four months, with some EU officials expressing early opposition to granting certification, alleging Gazprom does not comply with EU law. This could push the start of gas sales to Europe on Nord Stream 2 into 2022.

U.S. crude production increased 100,000 bpd to 11.4 million bpd during the first week of October, according to the most recent data available from the Energy Information Administration, while 1.4 million bpd above early September when Hurricane Ida forced a record number of offshore production shut-ins in the Gulf of Mexico. EIA will update on-land crude production output later Monday afternoon in its Drilling Productivity Report, while last week forecasted U.S. output to average 11.3 million bpd in its Short-term Energy Outlook.

On Friday, Baker Hughes reported a 12-rig increase in the number of active oil-directed rigs in the United States for last week, lifting the U.S. oil rig count to 445, 240 more than during the comparable week a year ago. It was the sixth consecutive weekly increase in the U.S. oil rig count, with producers having added 51 rigs since Hurricane Ida forced as many as 16 rigs offline in late August, early September.

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