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 mixed, but all petroleum contracts finished a volatile week of trading between 5% and 10% lower. The action occurred against a backdrop of protracted demand losses in the United States and globally as market participants brace for next week's pivotal Federal Open Market Committee meeting and inflation data.

The Producer Price Index, a measure of wholesale inflation, rose 0.3% in November, according to the Bureau of Labor Statistics, 0.l% higher than economists had forecast. The advance was once again driven by core prices that increased 0.4% from the previous month, dashing hopes that inflation in the service sector would start to cool off as we approach the year's end. Surprisingly, consumer inflation expectations improved in November, a survey by the University of Michigan showed, with declines in short-run inflation expectations visible across all age, income, and education groups.

At 3%, year-ahead inflation expectations have stayed within a narrow, albeit elevated, 2.9% to 3.1% range for 16 of the last 17 months. Consumers' outlook on the economy and personal finances also improved in November compared to expectations for no change during the month.

Following the mixed bag of data, investors raised their positions for the FOMC to lift the federal funds rates by 0.5% during their Dec. 13-14 meeting after four consecutive 0.75% rate hikes. The move would bring the federal funds rate to a target range of 4.25% and 4.5%.

The FOMC's median projection is expected to show the policy benchmark peaking at 4.9% in 2023 -- reflecting a 4.75% to 5% target range for the federal funds rate compared to 4.6% seen in September. A Bloomberg survey showed most economists expect the central bank would keep rates at their peak throughout 2023. The higher terminal rate would deliver a hawkish surprise to investors, who currently bet that rates will be cut by 0.5% in the second half of next year.

FOMC will release its policy statement along with economic projections at 2 p.m. EST Dec. 14, which will be followed by a news conference by Federal Reserve Chairman Jerome Powell 30 minutes later.

In comparison, China's inflation cooled more than expected again in November, with factory-gate prices contracting 1.3% from a year earlier after declining by the same magnitude in October. Consumer inflation eased to 1.6% from 2.1% in October, in line with economist projections. Core inflation, which excludes volatile food and energy prices, was unchanged at 0.6%.

That follows November trade data that further showed the damaging impacts of rolling lockdowns, with exports and imports falling to nearly 2020 lows in November. Exports fell by 8.7% last month from a year earlier to $296 billion following a 0.3% decline in October, data released on Wednesday by Chinese Customs showed. Shipments to the U.S. tumbled 25.43% compared to the same period last year, while exports to the European Union fell by 10.62% year on year.

China recorded record-high COVID cases in November despite curbs on mobility amid sporadic outbreaks, undermining economic activity last month. Both the manufacturing and services sectors took a big hit during the month, while trade contracted at a steeper pace.

Against this backdrop, Chinese health authorities relaxed some of the harshest COVID measures, beginning with limiting quarantine time to homes and lifting lockdowns in hard-hit areas. Although a bullish development, easing of COVID rules in China had very little impact on prices this week.

At settlement, January West Texas Intermediate futures fell $0.44 to $71.02 per barrel (bbl) -- a fresh 12-month low on the spot continuous chart. February Brent futures on ICE settled the session little changed at $76.10 per bbl. NYMEX January RBOB futures gained $0.0070 to $2.0561 per gallon, and January ULSD futures declined $0.0861 to $2.7937 per gallon.

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