Oil Futures Soften After Expiries

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In early trading on the first day of February, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange posted mild losses as investors monitor developments leading up to Wednesday's OPEC+ policy meeting for additional clues on the alliance's plans to release more supplies into a tightening oil market, while the upturn in manufacturing activity across European Union this month lent limited support.

Eurozone's economic data released overnight showed manufacturing activity across the 19-nation bloc regained upward momentum at the beginning of 2022, led by gains in production, new orders, and employment. The improvement came on the back of tentative signs that supply chain issues are starting to abate, while inflation pressures eased slightly. The headline number for Eurozone's final manufacturing Purchaser Manager's Index improved to 58.7 this month -- the highest since August 2021, and 0.7% higher compared with December reading.

Data split by Eurozone countries revealed Austria had the strongest-growing manufacturing sector in January, while faster expansions were also seen in the Netherlands, Germany and Ireland. Germany, the European Union's largest economy, recorded an improvement of 4.4 points from an 18-month low 49.9, signaling solid growth in business activity across the private sector after a slowdown at the end of 2021.

"Eurozone manufacturers appear to be weathering the Omicron storm better than prior COVID-19 waves so far, with firms reporting the largest production and order book improvements for four months in January. Prospects have also brightened, with a further easing in the number of supply chain delays playing a key role in prompting producers to revise up their expectations for growth in the coming year to the highest since last June," commented IHS Chief Business Economist Chris Williamson.

Later this morning, investors will turn their focus to U.S. manufacturing data to be released by the Institute of Supply Management at 10 AM ET, with expectations for business activity to have slipped to 57.5 last month from an 11-month low 58.7 recorded in the final weeks of 2021.

January could have been a volatile month for domestic manufactures faced with a widespread worker absenteeism amid the spread of Omicron and rampant inflation. There are tentative signs, however, that the latest COVID-19 wave is abating, with seven-day average of daily COVID-19 infections having fallen below 500,000 for the first time since Jan. 3 after having peaked above 800,000 midmonth, according to figures from Johns Hopkins University.

Also on Tuesday, oil traders are monitoring the developments around OPEC+ monthly meeting, with expectations for the 23-nation producer alliance to raise joint supplies by 400,000 bpd next month.

In December, OPEC+ added just 253,000 bpd to its combined production compared with an agreed to quota for a 400,000-barrel-per-day (bpd) increase, according to data from the International Energy Agency. The document from OPEC+ technical panel seen by Reuters indicates that total production by OPEC+ countries was 824,000 bpd lower than the required production in December 2021, with overall compliance for the group climbing to 122%.

OPEC's persistent underproduction fuels speculation about the cartel's ability to ramp up output in coming months. Arguably, there are only two members within the group that can pump more today than they could back in March 2020 -- Saudi Arabi and the United Arab Emirates. IEA estimates that OPEC's spare capacity could fall by half to just 2.6 million bpd in the second half of the year.

Near 7:30 a.m. ET, the front-month West Texas Intermediate futures declined $0.46 to $87.67 per barrel (bbl), with international benchmark Brent crude for April delivery falling $0.51 to $88.73 bbl. NYMEX March RBOB futures dropped 1.61 cents to $2.5383 gallon and March ULSD futures slumped 2.45 cents to near $2.6918 gallon.

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

Liubov Georges