DTN Oil

WASHINGTON (DTN) -- Following back-and-forth trade for most of the session, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session mixed. This came after U.S. inflation data showed no relief in consumer price pressure in June, with the headline inflation print climbing above 9% year-over-over -- the highest since November 1981, solidifying the case for a more aggressive interest rate hike policy from U.S. Federal Reserve to rein in demand.

More than 75% of investors now expect a full percentage point increase in the federal funds rate at the Fed's meeting later this month, according to CME's FedWatch Tool, after U.S. inflation print for June once again came in well above expectations. Futures markets priced in just a 7% chance for a 100-basis point interest rate hike a day ago.

Details of the Consumer Price Index report showed inflation is becoming more entrenched in the economy, with consumer prices increasing at their fastest pace in 41 years. Last month's spike was driven mostly by gasoline prices, up 59.9% from a year earlier, groceries, up 10.4% from June 2021, and electricity, up 13.7% year-over-year, among others.

Not surprisingly, the hotter-than-expected inflation report once again stoked fears about looming recession in the United States as the central bank is seen behind the inflation curve and would need to take an aggressive monetary tightening cycle that could push the U.S. economy into recession.

Economists at Bank of America now see a contraction in U.S. growth this year followed by a moderate recovery. In the fourth quarter, BOA see real GDP 1.4% below the year-earlier level. Data from the Federal Reserve Bank of Atlanta last updated July 8 show second quarter GDP already fell into contraction, down a negative 1.2%.

In reaction to the data, the U.S. dollar pulled back slightly from a fresh 20-year high of 108.420 reached Tuesday, settling 0.15% lower against a basket of foreign currencies. West Texas Intermediate August contract gained $0.46 to finish the session at $96.30 per barrel (bbl). The international crude benchmark Brent contract for September settled little changed at $99.57. NYMEX August RBOB futures declined 3.09 cents to $3.2337 per gallon, while front-month ULSD edged higher to $3.6659 per gallon.

Weekly inventory report from U.S. Energy Information Administration further limited gains for the oil complex, showing crude and refined fuels inventories increased by more than 11 million bbl during the week following the July 4th holiday as gasoline and distillate fuels supplied to the U.S. market dropped off sharply. U.S. gasoline demand plummeted to a six-month-low 8.1 million bpd during the week ended July 8, while diesel consumption fell to the lowest level this year at 3.368 million bpd. As a result, distillate stocks last week increased 2.7 million bbl to 113.8 million bbl, although are still below the five-year average, now at 18%. Analysts were anticipating distillates inventories would rise by just 1 million bbl from the previous week. Gasoline stockpiles jumped 5.8 million bbl from the previous week to 224.9 million bbl compared with analyst expectations for inventories to have decreased by 900,000 bbl.

U.S. commercial crude oil inventories rose 3.3 million bbl to 427.1 million bbl and are now only about 5% below the five-year average, EIA said. Earlier this week, analysts had expected crude stockpiles would fall by 900,000 bbl. Oil stored at the Cushing tank farm in Oklahoma, the delivery point for WTI futures, also increased by 316,000 bbl to 21.6 million bbl.

Earlier in the session, oil complex found limited support after International Energy Agency trimmed its 2022 and 2023 demand projections only modestly, citing a stronger-than-expected rebound in China and emerging markets.

Although high fuel prices have started to dent demand in Europe and the United States, global oil consumption is still expected to grow by 1.7 million bpd this year and 2.1 million bpd in 2023, according to projections from the Paris-based IEA. The driver behind the resiliency is a stronger-than-expected demand rebound in emerging and developing economies led by China as it starts to emerge from COVID-19 lockdowns. It must be noted, however, that persistent COVID-19 flare-ups coupled with China's "zero-COVID" policy stand to undermine this optimistic scenario. China's nationwide seven-day average infections climbed by 2,300 -- the fastest pace since May.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com