Oil futures: Crude spikes into European close, shakes off weak data

2 Aug 2022

Quantum Commodity Intelligence - Crude futures were rallying at the European close on Tuesday, shaking macroeconomic risk-off sentiment from earlier in the day as analysts pointed to persistent crude supply issues ahead of Wednesday's OPEC meeting.

Front-month October ICE Brent futures were trading at $101.93/b (1715 GMT), compared to Monday's settle of $100.03/b. Intraday, the spot price had touched a two-week low of $98.74/b.

At the same time, September NYMEX WTI was trading $96.06/b versus Monday's settle of $93.89/b.

The reversal came as investors were eyeing Wednesday's OPEC+ meeting, with the group set to enter a new era after the previous agreement expires at the end of August.

The OPEC+ Joint Technical Committee (JTC) met Tuesday and trimmed its forecast for a surplus in the oil market this year by 200,000 barrels per day (bpd) to 800,000 bpd, delegates told Reuters.

Theoretically, the producer alliance has unwound all of the 2020 pandemic production cuts, so attention shifts to how OPEC+ plans to hit targets and whether any further increases will be announced.

RBC Capital Markets said in its most recent investor note that while US President Joe Biden's July visit to Saudi Arabia produced no immediate oil deliverables, it is possible that the Kingdom will reciprocate by continuing to increase output gradually.

"Though some media commentators claimed that the President returned to Washington empty-handed, we think it was well understood by the White House that the Kingdom would work within the OPEC+ framework and would not pursue unilateral action while the current agreement remains in place through the end of the year," said RBC.

The upwards move for oil comes despite weakness earlier in the session that left crude prices touching their lowest levels since July 15.

Along with this week's sluggish factory data from China, oil markets also continued to feel the hangover from last week's bearish outlook for the US economy as the broader focus remained on risks to demand from fears of a recession, which some analysts say looks increasingly probable. 

Weak data also weighed in from Europe as factory activity plunged. S&P Global's final manufacturing PMI fell to 49.8 in July from June's 52.1, just ahead of a preliminary reading of 49.6, but its first time below the 50 mark separating growth from contraction since June 2020.

"New orders are already falling at a pace which, excluding pandemic lockdown months, is the sharpest since the debt crisis in 2012, with worse likely to come," said Chris Williamson, the chief business economist at S&P Global.

Meanwhile, North Atlantic storm activity remains quiet as the season enters into what is historically the most-lively two months, with the waters of the Caribbean and Gulf of Mexico rapidly heating.