DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced more than 2.5% on Monday, with West Texas Intermediate settling above a key resistance level as traders look to production cuts from the OPEC+ coalition and potential for China's stimulus to boost demand fundamentals in Asian markets.

WTI August futures on Monday broke through the 200-day moving average for the first time since August last year to settle at $78.74 per barrel (bbl), potentially opening the next leg of the rally in the oil complex. International benchmark Brent for September delivery added $1.67 per bbl on the session to settle at a three-month high $82.74 per bbl. In refined fuels, RBOB August futures on NYMEX advanced 0.0933 cent to $2.8951 a gallon, and ULSD futures moved up 0.0248 cent to $2.7705 a gallon.

A combination of lower supplies available from OPEC+'s largest producers, namely Saudi Arabia and Russia, along with chatter over China's stimulus may have pushed oil prices above the key resistance level, drastically improving the technical picture for the complex.

Monday's move higher in the oil complex came despite growing skepticism over China's plans to invigorate their recovery after the Politburo unveiled vague measures to stimulate the economy.

These steps include boosting domestic consumption of cars and electronics, addressing debt risks for the local governments and easing property policies.

The measures are short on details, however, and it's unclear whether they will lead to broader stimulus investors are hoping for. China's post-pandemic recovery has been so far disappointing, plagued by inadequate domestic demand and a slump in manufacturing activity.

Last week, several investment banks revised lower their forecasts for China's gross domestic product through the end of the year.

Despite weak domestic demand, China is still the world's largest oil importer, bringing in around 12.67 million barrels per day in June -- the second highest on record as refiners were seen building up inventories. Should China reinvigorate its lopsided recovery in the second half of the year, the high pace of oil imports could be supported by actual demand rather than restocking.

Capping gains for the oil complex is exceptionally weak macroeconomic data released overnight from the Eurozone, showing a sharper downturn in industrial output and a sustained slowdown in the services sector. The German manufacturing sector, in particular, has been hit hard, with the Purchasing Managers Index falling below the 40-point mark for the first time since COVID-19 lockdowns in April 2020. "This is a bad start to the third quarter for Germany's economy, with the flash PMI dropping into contraction territory. Over the last few months, we have seen a jaw-dropping fall in both new orders and backlogs of work, which are now declining at their fastest rates since the initial covid wave at the start of 2020," said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commenting on the data.

Meanwhile, business expectations across Germany toward future activity also turned negative for the first time this year, which is now being reflected in a weakening labor market. Manufacturers across Germany are beginning to react to the drop in business activity by trimming the workforce for the first time since the end of COVID lockdowns.

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