Oil futures: Crude rows back from 3wk highs on PMI data concerns
Quantum Commodity Intelligence – Crude oil futures were under pressure Monday despite initially consolidating the previous week's solid gains of 4-5%, as more worrying economic data was released from Europe and the US.
Front month Nov24 ICE Brent futures were trading at $73.87/b (1800 GMT), compared to Friday's settle of $74.49/b, after earlier moving up to three-week highs of over $75/b.
At the same time Nov24 NYMEX WTI was trading at $70.38/b versus Friday's settle of $71/b and an intraday high of $71.81/b.
Prices first wobbled following PMI data from S&P Global which showed a pullback in the Eurozone. The headline number for the composite PMI output index revealed a reading of 48.9, indicating a contraction.
This was followed by data showing US business activity was steady in September, but average prices for goods and services increased at the fastest pace in six months, potentially raising further inflationary pressures.
The US manufacturing reading also came in lower at 47, below the expected 48.5 and under the previous 47.9 number.
Trend
Benchmarks had been in a steady upwards trend for the previous week, underpinned initially by expectations that the US would reduce interest rates by 50 basis points, followed by the Fed's decision to go with the deeper cut.
"Brent crude oil's September slump below $70/b proved to be relatively short-lived, with the market concluding that a sub-$70/b level, combined with hedge funds holding a record weak belief in higher prices, would require a recession to be justified," said Ole S Hansen, Head of Commodity Strategy at Saxo Group, adding the financial firm estimate the likelihood of a US recession in 2025 to be 25%.
"We will be watching the $75/b level in Brent, with a break above potentially signalling fresh buying that may take prices closer to $80/b," added Saxo.
Meanwhile, traders are watching another weather system in the Caribbean, which is expected to move into the Gulf of Mexico in the coming days, likely passing over production systems lying off Louisiana as a hurricane.
As a precaution, Shell said it is preparing to evacuate some staff from platforms in the Mars Corridor, while Chevron has since followed.
Refining
There was also slightly better news for refiners after a summer-long retreat in profitability, although margins are still in something of a quagmire.
Diesel cracks finally found support in Europe last week, jumping $2/b from a near three-year low amid reports of run cuts as the northern hemisphere enters into peak demand season, prompting analysts to speculate the market has found a floor.
Cargoes delivered into Northwest Europe were pegged at over $16/b versus Brent, while Asia diesel margins nudged up $1/b to around $10.50/b over Brent.
Gasoline added to recent gains last week, with supplies tightening and cash diffs at fresh highs in Europe and Asia, although naphtha's rally ran out of steam as margins eased.
Otherwise, tensions remain elevated in the Middle East after Israel launched a series of coordinated attacks last week on Hezbollah operatives, but so far, there has been little reaction from the oil market.
