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OIL FUTURES: Overnight price rally slows as weak PMIs cloud near-term outlooks

Highlights

US, Eurozone manufacturing growth slows

Shell to restart West Delat-143 early November

Brent, WTI backwardation widens

An overnight crude price rally slowed midmorning Oct. 22, as near-term demand outlooks were clouded by slowing manufacturing growth in the US and Europe.

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At 1524 GMT, NYMEX December WTI was up 44 cents at $82.94/b and ICE December Brent was 37 cents higher at $84.98/b.

Signs of slowing economic growth in the US and Europe coupled with surging global energy prices and the return of pandemic restrictions in Russia has added uncertainty to near-term oil demand outlooks, analysts said, although longer-term outlooks remained bullish.

"Energy markets are under pressure alongside the broader commodities complex, reflecting turbulence in commodity demand expectations," TD Securities analysts said in a note. "Yet, in contrast to the industrial metals complex, our real-time gauge of energy supply risk has remained firm."

IHS Markit data released Oct. 22 showed the flash US manufacturing PMI fell to 59.2 in October from 60.7 the month prior, exceeding market expectations of a 0.2 percentage point slide and marking the lowest reading since March.

The flash Eurozone manufacturing PMI edged down to 58.5 in October from 58.6 in September, beating expectations of a reading closer to 57 but still showing factory growth at an eight-month low.

The Russian government on Oct. 21 announced tightened pandemic restrictions would be implemented in the nation's capital, Moscow, as COVID-19 case numbers and deaths there soar.

NYMEX November RBOB was down 1.61 cents at $2.4640/gal and November ULSD was 91 points lower at $2.5400/gal.

"It's still early days but this rally appears to be suffering the same problems as the last couple, a lack of momentum," OANDA senior market analyst, Craig Erlam, said in a note. "That doesn't really change the medium-term outlook for oil prices, which remains fundamentally bullish, but perhaps we will see a slightly larger pullback over the next week or so."

The US National Oceanic and Atmospheric Administration forecast Oct. 21 a milder winter across large parts of the US. Waning coal and gas prices also added to increased selling pressure to drag oil slightly lower in intraday trading. The coal market eased too following China's announcement of measures to combat the surging energy prices, which might slow the fuel switch to oil.

Meanwhile, US crude production should see a boost in coming weeks due to the pending restart of Shell's Gulf of Mexico West Delta-143 facility. The company announced Oct. 22 it expects operations at the facility to resume in early November, ahead of market expectations for a December restart. The facility suffered damage from Hurricane Ida, which made landfall in southeast Louisiana Aug. 29 as a category 4 hurricane.

US crude output averaged 11.3 million b/d in the week ended Oct. 15, latest US Energy Information Administration data showed, still some 200,000 b/d below pre-Ida levels.

"The fact that the supply situation is still tight argues against any further price slide on the oil market," said Carsten Fritsch, commodity analyst at Commerzbank. That inventories are being drawn and OPEC+ countries are hesitant on increasing outputs should "keep Brent at the $85 per barrel mark for the remainder of the year," according to Fritsch.