Oil futures moved higher Monday following a round of upbeat readings on manufacturing activity, but traders see upside limited as OPEC and its allies relax curbs on output and the number of COVID-19 cases continue to rise.
West Texas Intermediate crude for September delivery
added 83 cents, or 2.1%, to $41.10 a barrel on the New York Mercantile Exchange, while October Brent crude
rose 64 cents, or 1.5%, to $44.16 a barrel.
Oil added to early gains after the Institute for Supply Management said its manufacturing index rose to 54.2 in July from 52.6 a month earlier, its highest level in 15 months and above the consensus forecast of 53.6. A reading above 50 indicates an expansion in activity, but senior executives warned that production remains well below pre-pandemic levels and that many jobs won’t be coming back soon.
The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, agreed in early July to relax output curbs beginning in August. OPEC+ agreed to cut output by 9.7 million barrels a day beginning in May, easing to 7.7 million barrels a day this month and running through the end of the year. Countries that exceeded the earlier curb are supposed to further restrain output, which means output is targeted to rise by around 1.5 million barrels a day beginning this month, though skeptics doubt that past curb violators will fully comply.
“Investors are worried that the production increase will reverse the recent price recovery in oil, especially as coronavirus cases continue to rise world-wide and energy demand remains subdued,” said Mihir Kapadia, chief executive of Sun Global Investments, in a note.
Oil ended last week on a positive note, leaving WTI with a monthly rise of around 2.6% for July, while Brent rose more than 5% for the month.
Coronavirus infections in the U.S. reached a record in July, with more than 1.9 million new cases. The U.S. now has nearly 4.7 million confirmed COVID-19 cases and about 155,000 deaths, while the global tally for infections stands at more than 18 million and almost 690,000 deaths, according to data compiled by Johns Hopkins University.
In other energy trading, September natural-gas futures
surged 16% to $2.089 per million British thermal units. Natural gas jumped after forecasts pointed to warmer weather than previously indicated for mid-August, wrote analysts at Tradition Energy, in a Monday note.
“Weather forecasts, after the next five days of below-normal temperatures across a large swath of the central U.S. and above-normal temps across the Northeast and Texas, have shifted warmer to above-normal temperatures across much of the country in both the six-to-ten and 11-15 day forecast periods,” they noted.