Oil Price Fundamental Daily Forecast – Global PMI Jump Raises Hope for Future Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply higher a second day after posting a 3% gain on Monday. Both futures contracts had been under pressure for nearly two weeks on demand concerns as several European countries restarted lockdowns to curb the coronavirus. Infections recently hit a daily record in the United States as well, and major oil trading merchants believe it could stall out the recovery in demand.

At 11:52 GMT, December WTI crude oil is trading $37.98, up $1.17 or +3.18% and January Brent crude oil is at $40.12, up $1.15 or +2.95%.

Jump in Global Factory Data Triggered Rebound

Both futures contracts fell more than $2 early in the session on Monday, but rebounded after strong factory data in Asia, Europe and the United States U.S. Manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years.

China reported that factory activity expanded for the sixth straight month in October as business confidence grew to its strongest in years, a private survey showed on Monday.

The Caixin/Markit Purchasing Managers’ Index for Chinese manufacturing came in at 53.6 for October, better than the 53.0 forecast by analysts in a Reuters poll. The latest reading was the highest since January 2011, the survey results showed.

In Europe, manufacturing growth in the Euro Zone boomed in October but the recovery from severely depressed activity at the height of the coronavirus pandemic was again mostly driven by a buoyant Germany, a survey showed.

IHS Markit’s final Manufacturing Purchasing Managers’ Index climbed to 54.8 in October from September 53.7, its highest reading since July 2018 and ahead of the 54.4 flash estimate.

Pressure on OPEC+ to Postpone Production Cut Reduction

Output from the Organization of the Petroleum Exporting Countries (OPEC) rose for a fourth month in October, a Reuters survey found. Libyan supply stands at about 800,000 bpd, up more than 100,000 bpd from a few days ago, a Libyan source told Reuters on Saturday. Traders believe it could hit 1 million bpd by December 1.

OPEC and its allies including Russia are cutting output by about 7.7 million bpd to support prices. OPEC+ is scheduled to hold a policy meeting on November 30 and December 1, with some market participants expecting a postponement of plans to ramp up output by 2 million bpd from January.

Top managers of Russian oil companies and Russian Energy Minister Alexander Novak on Monday discussed a possible extension of oil output restrictions into the first quarter of 2021, two industry sources said.

The recent two week plunge in crude oil prices and expectations of lower demand due to COVID-19 are putting pressure on OPEC+ to delay the loosening of output restrictions.

Daily Forecast

The jump in global PMIs is giving oil traders a small cushion as traders wait for the next reports that are likely to show the negative impact on the global economy from the new restrictions placed due to rising COVID-19 cases.

Speculation that OPEC+ may make a move to curtail the amount of supply hitting the markets is also supporting the short-covering rally.

Today’s American Petroleum Institute (API) weekly inventories report is likely to take a backseat to the U.S. presidential election that could be the source of volatility throughout the day.