DTN Oil

WASHINGTON (DTN) -- After retreating for four consecutive sessions, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange stalled just above the level where OPEC+ announced 1.6 million barrels per day (bpd) production cuts as traders continue to search for evidence that demand is not deteriorating further against the backdrop of recessionary data in global manufacturing.

Overnight macroeconomic data showed deeper contraction in the European industrial sector, with the headline index for manufacturing activity eroding to the lowest level since May 2020.

The European manufacturing sector has remained in contraction for the tenth straight month and shows little signs of recovery in the foreseeable future. More positively, Eurozone business activity in the service sector accelerated to a 12-month high 56.6, lifting the composite PMI solidly into growth territory. "The upturn was driven by reviving demand and was accompanied by the largest increase in employment in nearly a year. Growth became increasingly uneven, however, with resulting outperformance of services relative to manufacturing was the widest since early 2009, and the survey has not yet previously recorded such a strong service sector expansion at a time of manufacturing decline", read the comments to the data release. Potentially, contributing to manufacturing weakness this month are widespread protests in France that have prompted shutdowns of some industrial facilities and power plants.

Oil traders pay close attention to manufacturing data given the energy-intensive nature of the industrial sector versus private consumption that has grown increasingly energy efficient in recent years.

Domestically, the Philadelphia Fed Manufacturing Index released Thursday also fell deep into contraction territory at a minus 31.1 reading. It is now at the lowest level since May 2020. Along with slowing economic activity, prices paid and prices received declined to their lowest readings since mid-2020, suggesting inflationary pressures are easing as well.

Nationwide, manufacturing activity also remains deeply in contraction at 46.3% in March -- the lowest level since May 2020. "Sales are slowing at an increasing rate, which is allowing us to burn through back orders at a faster-than-expected pace." said a representative of the transportation equipment industry.

Traders are laser-focused on demand fundamentals in the U.S. and European Union amid recession jitters and signs of a retreating consumer.

Wednesday's inventory report released by the U.S. Energy Information Administration showed demand for motor gasoline fell 417,000 bpd to 8.519 million bpd. On a four-week average basis, gasoline supplied to the U.S. market -- a measure of demand -- eroded 4.2% below 2019 levels for the seasonal period. As a result, domestic gasoline stocks rose 1.3 million barrels (bbl) in the week ended April 14. With summer travel season quickly approaching, traders are particularly concerned about the direction of fuel demand.

Further evidence of a weakening economy could be found in the Federal Reserve's Beige Book release Wednesday afternoon, showing overall economic activity has been little changed in recent weeks, but lending volumes and loan demand have generally decreased across consumer and business loan types. "Several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity" following the collapse of Silicon Valley Bank on March 10. Consumer spending, which accounts for two-thirds of the U.S. economy, "was generally seen as flat to down slightly," the Beige Book said. Wages remained elevated but showed some moderation and the labor market showed signs of loosening up, according to the report.

Near 7:30 a.m. EDT, NYMEX June West Texas Intermediate futures edge higher to $77.55 bbl, with international crude benchmark ICE Brent futures for June delivery trading little changed near $81.28 bbl. NYMEX May RBOB futures advanced $0.0240 gallon to $2.6112 gallon May ULSD futures edged higher $0.0080 to $2.5029 gallon.

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