Oil Futures Waver in Early Trading, Head for Weekly Gains
WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York
Mercantile Exchange and Brent crude traded on the Intercontinental Exchange
declined in early trading Friday, although all contracts are on course for
hefty weekly gains spurred by large inventory draws from U.S. commercial crude
and distillate fuel inventories, exacerbated by extended production outages in
the offshore Gulf of Mexico, while weaker-than-expected industrial data from
Eurozone and the United States capped the market's upside.
Further weighing on the oil complex, U.S. dollar regained upward momentum in
overnight index trade after sliding to 93.030 the prior session following U.S.
manufacturing data for September that missed market expectations and
unemployment claims which unexpectedly rose last week. U.S. Labor Department
said Thursday initial unemployment claims, a proxy for layoffs, rose 16,000 to
351,000 last week from an upwardly revised 335,000 the prior week. The increase
in COVID-19 cases over the past two months has weighed on consumer sentiment
and could have contributed to a hiring slowdown in August, particularly in the
leisure and hospitality industry. However, the initial claims numbers suggest
that firms haven't reacted by laying off workers broadly.
The missed call on weekly jobless claims was followed by a
lower-than-expected reading for the U.S. composite Purchasing Manager's Index
at 54.5 against market consensus for a 55.5 reading. The manufacturing
component of the index was 60.5 against expectations for a 60.8 reading, with
services at 54.4 versus an anticipated 55.1 reading. Some of the slowdown in
manufacturing reflects the rotation in spending back to services from goods
because of COVID-19 vaccinations. Manufacturing, which accounts for 11.9% of
the U.S. economy, remains underpinned by businesses desperate to replenish
stocks after inventories were drawn down sharply in the first half of the year.
In financial markets, U.S. equity futures slipped in early trade Friday as
investors assess the impact China's Evergrande default would have on growth
prospects in the world's second largest economy. China Evergrande, the indebted
property developer that is at the heart of systemic risk concerns in Asia,
missed an $83.5 million dollar-bond debt payment Thursday and entered a 30-day
grace period that it must use to meet obligations for foreign creditors. The
impact, however, was muted in overnight trading, as China's central bank
injected millions into its financial system and markets rode Walls Street's
solid rally Thursday sparked by a dovish U.S. Federal Reserve.
Federal Reserve Chairman Jerome Powell said this week that "it will be
suitable to finish tapering around the middle of next year," referring to the
central bank's $120 billion in monthly purchases of U.S. bonds and
mortgage-backed securities. Tapering isn't expected to begin until the fourth
quarter, with the Federal Open Market Committee to meet next Nov. 1-2. Those
plans could come undone if the U.S. labor market deteriorates.
At 10 AM ET, Powell, Fed Vice Chair Richard Clarida, and Fed Governor
Michelle Bowman will be speaking at the "Fed Listens" event.
Near 7:30 AM ET, NYMEX November West Texas Intermediate futures slipped
$0.22 to trade just above $73 bbl after rallying to an eight-week high $73.50
bbl on Thursday, and ICE November Brent futures traded little changed near a
12-week high at $77.16 bbl. NYMEX October ULSD futures declined 1.03cts to near
$2.2388 gallon after surging to 35-month high $2.2565 gallon overnight, and
front-month RBOB futures fell 1.37cts to near $2.1578 gallon.
Liubov Georges, 1.646.359.4088, email@example.com, www.dtn.com.
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