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 modestly higher, although all petroleum contracts backed off intrasession highs after U.S. manufacturing data for October came in weaker than expected, weighed down by rising inflation and a tight labor market while market participants await a decision from the Organization of the Petroleum Exporting Countries and Russia-led partners on production levels for next month.

OPEC+ oil ministers will meet via videoconference on Thursday (Nov. 4) to decide on production quotas for December, with expectations for the 23-nation coalition to maintain a policy of measured production increases despite calls for more aggressive output increases. Over the weekend, Angolan Oil Minister and OPEC President Diamantino Azevedo indicated he sees "no need to deviate" from the current plan as the market is projected to be in balance by the end of the year. He added that the group accepts that uncertainties over COVID-19 variants continue to cloud demand forecasts, while dismissing calls for a bigger hike, saying recent price increases have been driven by "shortages in coal and gas but not by a shortage of oil." This sentiment has been echoed by oil ministers of Saudi Arabia, Iraq, and Kuwait.

"Iraq sees that this output increase will reach 2 million barrels per day (bpd) by the end of the year. It will absorb any increase in demand and lead to the stability of the oil market," Iraqi Oil Minister Ihsan Ismail said in a statement to the state-run Iraq News Agency on Saturday (10/30).

Ahead of Thursday's ministerial meeting, the OPEC+ technical panel revised lower their expectations for global oil market tightness in the fourth quarter, with the global supply deficit now seen at just 300,000 bpd in the three months ending in December, well below the 1.1 million bpd shortfall projected earlier this month.

On the session, NYMEX West Texas Intermediate futures for December delivery gained $0.48 to settle at $84.05 per barrel (bbl), and the new front-month ICE January Brent contract advanced to $84.71 bbl, up $0.99 from Friday's settlement. NYMEX RBOB December futures rallied 3.96 cents to $2.4093 gallon settlement and NYMEX ULSD December futures moved up by 2.44 cebtsto $2.5031 gallon.

The oil complex came under selling pressure after manufacturing data released by the Institute of Supply Management showed the industrial sector in the U.S. continued to lose momentum in October, with factory output remaining constrained by supply-chain bottlenecks.

U.S. Manufacturing Business Activity index for October came in lower-than-expected at 60.8%, down 0.3% from the previous month's showing. "All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems -- continue to limit manufacturing growth potential," said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Against this backdrop, the Federal Open Market Committee will begin its two-day policy meeting on Tuesday, with expectations for Fed officials to announce tapering of $120 billion a month in bond-buying stimulus that have been holding down market interest rates since the peak of the pandemic. The $120 billion in monthly purchases, including $80 billion in monthly treasury purchases and $40 billion in government-backed mortgage securities would be cut back to zero by mid-2022, according to central bank officials. In recent weeks, a growing number of hawkish Federal Reserve officials voiced their support for lifting interest rates as early as next year.

"The next several months are critical for assessing whether high inflation numbers we have seen are transitory," Fed Governor Christopher Waller said on Oct. 19. "If monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022."

Goldman Sachs forecast the central bank would begin hiking interest rates in July 2022 from the previous forecast of the third quarter 2023.