Oil Sinks on Weak US Manufacturing, Easing Diesel Concerns


   
   WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent 
crude traded on the Intercontinental Exchange settled Tuesday's session with 
steep losses, sending West Texas Intermediate towards $80 bbl after business 
activity in the U.S. manufacturing sector declined for the second straight 
month in January and on easing concerns over tight diesel supplies on the 
global market.

   Sharp slowdown in U.S. manufacturing sector at the start of the year will 
likely translate into less demand for industrial fuels like diesel and fuel 
oil, partly offsetting concerns over tight diesel supplies ahead of a European 
Union ban on Russian products exports. The headline U.S. Purchasing Managers 
Index registered 46.6 in January, with solid overall contraction reported 
across industrial and service sectors. Goods producers and service providers 
recorded similar rates of decline, with service sector firms indicating a 
notable slowdown in the pace of decrease since December. Companies continued to 
highlight subdued customer demand and the impact of high inflation on client 
spending. U.S. diesel demand is highly correlated with the pace of economic 
expansion.

   With that in mind, oil traders will pay close focus to this week's inventory 
data in the United States beginning with the American Petroleum Institute 
report scheduled for 4:30 PM ET, followed by official data from the U.S. Energy 
Information Administration Wednesday morning.

   Analysts expect U.S. commercial crude oil inventories to have increased by 
100,000 bbl for the week-ended Jan. 20, with estimates ranging from a drop of 5 
million bbl to a gain of 4.6 million bbl. Gasoline stockpiles are expected to 
have increased by 1 million bbl from the previous week, while stocks of 
distillates, which is mostly diesel fuel, are expected to have fallen by 1 
million bbl. Refinery use likely increased by 1.4% from the previous week to 
86.7% of capacity.

   U.S. refiners have been slow to bring back shuttered production caused by 
the late December blast of brutal cold that froze equipment. In the second week 
of January, refiners still processed some 1.2 million bpd less crude compared 
to mid-December levels.

   Early in the session, oil futures got a leg up from upbeat economic data out 
of the Eurozone, where business activity returned to positive growth at the 
start of the year. Business confidence jumped higher, hinting at markedly 
improving prospects for the year ahead, with order books for both manufacturers 
and service providers showing reduced rates of contraction.

   Within the Euro area, Germany reported only a slight drop in economic 
output, with the headline PMI rising to 49.7 -- the highest since output began 
falling last July. Manufacturing output in January declined at the same rate as 
in December, while services returned to growth with a 50.4 reading.

   "A steadying of the eurozone economy at the start of the year adds to 
evidence that the region might escape recession," commented Chris Williamson, 
Chief Business Economist at S&P Global Market Intelligence. "The survey 
suggests that a nadir was reached back in October, since when fears over the 
energy market in particular have been alleviated by falling prices and 
warmer-than-usual weather."

   On the back of the stronger-than-expected performance, the German government 
revised its forecast for economic growth to 0.2% this year from a previously 
seen contraction of 0.4%. Easing global supply chain issues along with the 
reopening of China's economy has benefited producers in Germany and helped to 
restore confidence in the broader economic outlook for 2023.

   At settlement, WTI for March delivery declined $1.49 to $80.13 bbl and Brent 
March futures on ICE fell $2.06 to $86.13 bbl. NYMEX RBOB February contract 
retreated to $2.6487 gallon, down $0.0478, and front-month ULSD futures tumbled 
$0.1237 to $3.4272 gallon.

    

    

   Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, wwww.dtn.com.




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