Oil Prices Notch Two-Year Highs as Dollar Gains Ahead of FOMC Speeches

Oil prices climbed to more than two-year highs on Monday after major producers said output cuts were draining the supply glut. The oil market is having a stellar month, continuing a rally fueled by stronger demand and expectations of bigger output cuts.

Brent Tops $59.00 a Barrel

ICE Brent futures for November delivery reached a session high of $59.25 a barrel Monday. Prices settled on a gain of $2.16, or 3.8%, at $59.02 a barrel. That’s the highest settlement since July 2015.

U.S. West Texas Intermediate (WTI) futures notched five-month highs in New York. The November contract rose $1.57, or 3.1%, to $52.12 a barrel.

Crude prices have gained more than 10% over the past month on brighter demand prospects and expectations that global producers will extend an agreement to curb output.

U.S. Shale Boom

The resurgence of U.S. shale production has played a leading role in delaying the market rebalancing. Rising prices have encouraged shale producers to boost explorations plans and to pump more.

According to Baker Hughes Inc., the active U.S. rig count has jumped 85% from a year ago. The active rig count fell by one last week to a total of 935. Active oil rigs fell by five to 744.

Total active rig counts bottomed at 404 during the height of the oil-price collapse in 2016. Activity has gradually increased as efficient shale producers capitalized on steady price gains.

U.S. Dollar Gains Half a Percent

The U.S. dollar posted rare gains against a basket of rival currencies after New York Fed President William Dudley said interest rates are on track to rise gradually.

In a speech at Onondaga Community College, Dudley said said “inflation will rise and stabilize” around the Fed’s 2% target in the medium term.

Last week, the Federal Open Market Committee (FOMC) voted to keep rates on hold, but said another round of tightening was likely before year’s end.

The U.S. dollar index (DXY) climbed 0.5% to 92.65, its highest settlement in three weeks.

A stronger dollar normally acts as a disincentive to purchase commodity contracts that are themselves priced in the currency. However, that wasn’t the case for gold or energy commodities on Monday.

After a disastrous two-week stretch, December gold futures rebounded sharply on Monday to $1,314.40 a troy ounce.

Economic Data

An upbeat Texas manufacturing survey on Monday sets the bar high for this week’s U.S. data releases. On Tuesday, the Commerce Department will report on August new home sales. The Richmond Fed will also unveil the regional manufacturing index for September.

August durable goods orders will make headlines on Wednesday, giving way to revised second quarter GDP on Thursday.

The highly anticipated personal incomes and outlays report will be released Friday morning. The monthly data series includes the latest estimate of core PCE inflation, which is the Fed’s preferred measure of price growth.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi