DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved higher on Monday at the start of a new trading week. Investors looked past Moody Investors Service's U.S. credit rating downgrade ahead of another deadline to reach a debt ceiling agreement on Capitol Hill to instead focus on the outlook for fuel demand following upbeat projections from the Organization of the Petroleum Exporting Countries.

Saudi-led OPEC dismissed an "exaggerated negative sentiment" on the oil markets, blaming the recent decline in oil prices on speculators and hedge fund managers. Oil prices have declined in each of the past three weeks, sending the international crude benchmark Brent contract below the $80-a- barrel (bbl) mark on Nov. 9 for the first time since mid-summer. In its Monthly Oil Market Report released Monday morning, OPEC asserts physical market fundamentals are "strong and supportive" due to solid demand growth in China and India -- Asia's two largest oil consuming nations.

"Despite the overblown negative sentiment in the market regarding China's oil demand performance, and global oil market in general, the latest data shows Chinese crude imports increasing to 11.4 million barrels per day (bpd) in October and remaining on track to reach a new annual record high for this year," according to OPEC's MOMR.

As such, OPEC lifted its global oil demand growth outlook to 2.5 million bpd this year, up from 2.44 million bpd in the previous month's outlook.

OPEC said despite healthy and supportive market fundamentals, financial market speculators have sharply reduced their net long positions over the month of October compared to late September, particularly in NYMEX West Texas Intermediate futures and options contracts. The producer group pointed to data that showed hedge funds and other money managers sold an equivalent of 161 million bbl and 43 million bbl of NYMEX WTI and ICE Brent futures and options contracts, respectively. In total, they have sold an equivalent of more than 200 million bbl of oil since late September, reducing their bullish positions by 37%.

In broader markets, investors seemed to shrug off Moody's weekend downgrade for the outlook on U.S. credit rating, with the agency lowering the credit rating from stable to negative ahead of a potential federal government shutdown on Friday, Nov. 17.

The key drivers for the outlook change are the downside risks to U.S. fiscal strength and high interest rates that are expected to sustain large fiscal deficits in the near-term, which, in turn, will significantly weaken debt affordability for the U.S. government.

"Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability," said Moody's.

The credit rating agency maintained however U.S. long-term and foreign-currency country ceilings at a AAA rating, citing the central roles of the U.S. dollar and Treasury bond market in the global financial system among other factors.

At settlement, NYMEX December WTI futures added $1.09 to $78.26 bbl, with January WTI closing the session with a $0.07 bbl discount against the front-month contract. ICE January Brent futures settled the session $1.09 higher at $82.52 bbl, while the next month February contract expanded the discount to the prompt month to $0.33 bbl. NYMEX December RBOB futures rallied to $2.2359 gallon, up $0.0464, and NYMEX December ULSD futures advanced $0.0962 to $2.8393 gallon.

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