Morning Market Overview
New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange reversed higher, rallying in early trading during the first business day of 2019 after initially pressured by data from China showing the manufacturing sector in the world’s second largest economy contracted in December that revived worry over global oil demand.
The Caixin Manufacturing Purchasing Manager’s Index released overnight showed manufacturing in China contracted in December, with the index at 49.7 the weakest since February 2016, while down from 50.2 in November. A reading below 50 indicates contraction. China’s manufacturing sector has consistently declined since late in the third quarter 2018 and its economy overall has slowed, detailing the adverse effects the U.S.-China trade dispute is having on the world’s second largest economy. The concern is that the ongoing slowdown in China’s economy would spread worldwide, hampering economic growth and demand for oil.
Negative economic data points during the fourth quarter have increasingly prompted calls that there would be a global recession in 2019, with bearish sentiment overwhelming previous projections for strong oil consumption this year. The International Energy Agency projects annualized world oil demand growth at 1.4 million bpd this year, a quicker pace than the 1.3 million bpd year-on-year growth rate estimated for 2018.
Equities sold off hard in early trading on the bearish Chinese data, with the Dow Jones Industrial Average losing more than 350 points in early trading, while down a little more than 150 points midmorning. Late last week, equities were boosted on reports a U.S. trade delegation would travel to China this month, a potential sign the parties are moving closer to resolving their disagreements over trade policy.
Manufacturing also slowed in Europe and the United States in December. The eurozone PMI Manufacturing Index declined from 51.8 in November to an as expected 51.4 in December, a 33-month low. The U.S. PMI Manufacturing Index slowed from 55.3 in November to a lower-than-expected 53.8 in December.
Production cuts of 1.2 million bpd by the Organization of the Petroleum Exporting Countries, Russia and nine non-OPEC oil producers took effect Tuesday and run through the end of June. Saudi Arabia is expected to cut more than the reported 250,000 bpd quota the kingdom is assigned, while reports indicate Russia will gradually reduce output to comply with its 230,000 bpd cut under the December agreement. NYMEX February West Texas Intermediate were up $1.15 near $46.55 bbl, even as the U.S. dollar rallied in index trading.
ICE March Brent $1.50 higher at $55.30 bbl. NYMEX February RBOB futures were up 4.85cts near $1.3505 gallon. February ULSD futures reversed up from a $1.6424 16-month low on the spot continuation chart, trading 4.7cts higher near $1.7270 gallon.
The National Weather Service is forecasting above normal temperatures for the majority of the United States in its 6-10 day forecast, with the warmer-than usual weather to continue through Jan. 15 in most of the country. NWS does forecast normal temperatures for the Northeast and Mid- Atlantic in its 8-14 day forecast, while below normal readings are projected for the eastern half of the United States during the latter part of January.
The Energy Information Administration will update U.S. supply data for the week ended Dec. 28 at 11 AM ET Friday despite the partial government shutdown. “EIA has FY 2019 appropriations and will continue publishing and collecting data,” said the statistical and analytical division of the Department of Energy.