DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session with losses under pressure from weaker-than-expected U.S. manufacturing data that showed protracted weakness in the industrial sector, undermining the outlook for refined fuels demand.

The Commerce Department reported on Monday durable goods orders dropped 4.5% in January -- the steepest decline since April 2020 when the country was in COVID lockdown -- reflecting a sharp pullback in bookings for commercial aircraft. January's decline followed a 5.6% jump in durable goods orders in December that was tied to aircraft orders. The Commerce Department's report showed bookings for commercial aircraft, which are volatile from month to month, slumped 54.6% at the start of the year.

Other indicators also pointed to a weak manufacturing sector. The Institute for Supply Management's gauge of factory activity has shown contraction for three straight months, and several regional Federal Reserve banks showed shrinking activity in January. For context, Texas factory activity in February declined for the first time since May 2020, according to the Dallas Federal Reserve Bank's Texas Manufacturing Outlook Survey released Monday morning. In February, new orders declined for the ninth consecutive month, the growth rate of orders fell for a tenth month, while prices paid for raw materials and wages and benefits grew for a 34th straight month.

"All markets served have slowed down and are ordering lower quantities as compared with last year," said one manufacturer. A textile product mills manufacturer said, "February has been a slow month; it is hard to know why, but our outlook has worsened for both our business and retail activity in general."

Following the bearish data, the U.S. dollar index declined 0.5% against a basket of foreign currencies to settle at 104.624, but the weakness failed to lend support for the front-month West Texas Intermediate futures. WTI April futures on NYMEX fell $0.64 to $75.68 bbl.

Internationally, the global crude benchmark Brent contract for April delivery eased $0.71 to settle at $82.45 bbl ahead of expiration Tuesday afternoon, with the May contract falling $0.78 to $82.45 bbl.

NYMEX RBOB March added $0.0096 to settle at $2.3683 gallon, with the next-month RBOB futures widening its premium to the expiring contract to $0.2157. NYMEX ULSD March futures advanced $0.0236 to $2.8198 gallon and ULSD April futures settled at $2.8003 gallon.

Early in the session, the oil complex got a leg up from reports Russia cut oil supplies on the Druzhba pipeline to Poland a day after Warsaw sent the first Leopard tanks to Ukraine.

"We're effectively securing supplies. Russia has halted oil deliveries to Poland, for which we are prepared. Only 10% of crude oil has been coming from Russia, and we will replace it with oil from other sources," said Chief Executive Officer of Poland's largest refiner PKN Orlen Daniel Obajtek.

It must be noted that the Druzhba pipeline, which supplies oil to Poland and Germany, as well as to Hungary, Czech Republic, and Slovakia, was exempted from EU sanctions to help the landlocked countries of Eastern and Central Europe secure oil supplies. It doesn't appear that disruption in Poland affected deliveries to Hungary, Slovakia, and Czech Republic.

Before the Russian invasion of Ukraine, Druzhba pipeline, whose name means "friendship" in Russian, delivered around 2 million bpd to the European Union, making it one of the world's largest pipelines.

Since February 2022, European Union opted for increased oil purchases from the United States, Saudi Arabia, and the United Arab Emirates among other producers. According to ship-tracking firm Kpler, average monthly seaborne cargoes from the U.S. to the continent jumped 38% compared with the previous 12-month period. A fleet of tankers carried more crude to Germany, France, and Italy -- EU's largest economies -- as well as to Spain, which alone boosted purchases by about 88% over the period. Kpler estimates the U.S. exported 1.53 million bpd into the EU last month.

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