Oil Futures Wobble with Growth Concerns in Focus, USD Slips

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed in early trade Tuesday, with all contracts erasing some of their early week gains as traders balance concerns over slowing economic growth undermined by rising inflation and flare-up in COVID-19 infections in Asia and parts of the European Union against prospects of tightening the global oil market in the fourth quarter.

U.S. economic growth likely slowed to 2.7% in the third quarter from 6.7% expansion seen from April-July period, according to the U.S. Bureau of Economic Analysis. A combination of a tight labor market, disrupted supply chains, and spread of the Delta variant of coronavirus are all seen weighing on economic activity in the final months of the year and into early 2022. The Atlanta Federal Reserve Bank is less optimistic on third-quarter growth, estimating gross domestic product gained a mere 0.5%, down from a 1.2% expansion rate seen on Oct. 15.

While Thursday's third quarter GDP release will likely disappoint, the deeper forces that have pressured growth this fall have accelerated further in the final months of the year. New outbreaks of COVID-19 infections in China and Russia coupled with a record run in natural gas and coal prices stands to exacerbate risk of global stagflation.

Next, investors will turn their focus to consumer confidence index for October, to be released by the Conference Board at 10 a.m. ET. Consensus calls for consumer's outlook to have eroded further this month after plunging to a near decade-low at the end of the summer. The Consumer Confidence Index from the Conference Board is expected to drop to 108.3 in October from September's 109.3.

The U.S. Dollar Index, which gauges the greenback's value against a bundle of foreign currencies, reversed lower in early hours Tuesday after nearly touching 94-level in overnight trade.

Near 7:30 a.m. ET, NYMEX West Texas Intermediate futures for December delivery gained $0.24 to trade at $84 per barrel (bbl), and the international crude benchmark Brent contract traded little changed at $86.11 bbl. NYMEX November RBOB advanced 1.43 cents to $2.5305 gallon and front-month ULSD futures edged up to $2.5684 gallon.

Earlier in the week, oil futures found limited support from comments by Saudi oil minister Prince Abdul-Aziz bin Salman who indicated OPEC+ should stick to their policy of measured production increases next month, adding that global demand recovery is far from complete.

"We are not out of the woods. We need a careful approach. This crisis is contained but not necessarily over," said Prince Abdul-Aziz.

OPEC+ next meets on Nov. 4 to decide on its production policy for December, with consensus calling for the alliance to raise output by 400,000 barrels per day (bpd) -- the same amount the producer group added in August, September, and October, and is set to do again in November. Private surveys found OPEC+ compliance with oil cuts fell slightly to 115% in September, indicating producers continue to carefully manage their supply targets.

The International Energy Agency in its latest monthly Oil Market report said OPEC+ spare capacity could fall to below 4 million bpd in the fourth quarter of 2022 from 9 million bpd in the first quarter of 2021. Spare capacity will be concentrated in Middle East producers Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait, the IEA said.

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

Liubov Georges