DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, though all petroleum contracts registered week-on-week losses. These were triggered by deepening concerns over recession in the United States and European Union as central banks move aggressively to raise interest rates to rein in excessive consumer demand.

U.S. retail sales increased by 1% in June, according to the data released Friday from the Commerce Department, topping expectations for a 0.8% month-on-month gain. The figures likely reflected the impact of decades-high inflation rather than an acceleration in spending activity. Still, there were no signs that the American consumer is pulling back on spending either. Nine of the 13 retail categories showed increases last month, according to the report, including furniture stores, e-commerce and sporting-goods stores. That comes despite consumer prices gaining at the fastest clip since 1981 in June, which sparked a debate as to whether the Federal Reserve would consider an unprecedented full percentage-point interest-rate hike later this month.

Fed Gov. Christopher Waller suggested this week that markets are overestimating the potential for a 1% increase in federal funds rates but added the central bank will be data-driven in making its rate decision. This sentiment was supported by Atlanta Federal Reserve President Raphael Bostic who said on Friday that moving interest rates "too dramatically" could undermine the positive trends still seen in the economy and add to the already large amount of uncertainty.

Friday afternoon, 69% of investors expect the Federal Open Market Committee will hike interest rates by 75 basis points when the board meets in two weeks, according to CME's FedWatch Tool. Futures markets price in just 30.9% chance for a 100-basis point interest rate hike.

Not surprisingly, rapid re-pricing of the Fed's rate hike and hotter-than-expected inflation report stoked fears of economic downturn, with some analysts suggesting the U.S. has already entered a mild recession. Atlanta's GDPNow model estimates economic growth in the second quarter contracted to -1.5% as of today, down from -1.2% seen on July 8.

The downgrade follows recent releases from the U.S. Bureau of Labor Statistics, the U.S. Census Bureau, the Federal Reserve Board of Governors, among others. Two consecutive quarters of negative growth is technically needed to define a recession.

Limiting gains for the oil complex, overnight data out of China showed the world's second-largest economy expanded at just 0.4% in the second quarter, missing estimates for 1% growth and 4.4% below the increase reported in the first three months of the year. This was the weakest performance since the first quarter of 2020, when China's economy came to a near standstill as it battled to contain the initial coronavirus outbreak that started in Wuhan province. Absent of effective vaccine, Beijing resorted to harsh lockdowns and movement controls to limit the viral spread in the nation of 1.4 billion people.

The worst of the downturn, however, appears to be over for the world's second-largest economy, but recovery is bound to remain weak due to the resurgent virus.

For the first half of this year, the economy grew by 2.5%, way below the 5.5% annual target set by the government. Beijing admitted Friday that reaching its GDP goals this year would be hard.

At settlement, West Texas Intermediate August contract rallied $1.81 to $97.59 per barrel (bbl). International benchmark Brent for September delivery advanced more than $2 to $101.16 per bbl. NYMEX August RBOB futures gained 2.64 cents to $3.2132 per gallon, while front-month ULSD added 4.96 cents to $3.6990 per gallon.

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

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