Oil Futures Decline on Weak Data

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange spot month oil futures and Intercontinental Exchange Brent crude settled lower Thursday, with the international crude benchmark falling more than 2% as weaker-than-expected manufacturing data from the United States reinforced fears that a demand-crimping global recession is looming.

Following steep losses Wednesday, NYMEX September West Texas Intermediate futures dropped $0.76 to settle at $54.47 barrel (bbl), with WTI October futures ending the session at $0.05 discount to the front-month delivery contract. NYMEX WTI September options expired this afternoon, with the futures contract scheduled to expire Tuesday (8/20).

ICE October Brent futures fell a steeper $1.25 to settle at $58.23 bbl, with declines accelerating in market-on-close trade. NYMEX September ULSD futures finished 3.3 cents lower at $1.8107 gallon, and the September RBOB contract shed 3.94 cents to settle the session at $1.6364 gallon, a one-week low.

U.S. dollar strengthened 0.179 to a 98.005 two-week high in index trading Thursday.

Thursday's lower session comes as the U.S. Federal Reserve reported a sharp drop in domestic industrial production, down 0.2% in July versus a 0.1% expected decline. Weaker-than-expected data further unnerved investors on Wall Street a day after equities sold off, with the Dow Jones Industrial Average tumbling more than 800 points.

The bearish data follows a slew of downbeat figures from Germany and China, both pointing to a structural slowdown in the world's manufacturing powerhouses. Germany's economic growth fell 0.1% quarter on quarter, while the annual growth rate slowed to 0.5% in the second quarter from 0.9% growth during the first three months of the year. In China, industrial output plunged to a 17-year low, down to 4.8% last month from 6.3% in June, according to China's National Bureau of Statistics. The latest estimates highlight the struggles of the manufacturing sector around the world against the winds of a more than yearlong trade war between the United States and China.

Earlier reports indicated China has vowed to retaliate against an additional 10% in tariffs to be imposed on its U.S. imports that Washington delayed until mid-December. According to wire service reports, Beijing said the new tariffs are a violation of an agreement reached by U.S. President Donald Trump and China's President Xi Jinping a month earlier, signaling further escalation in their trade war.

Elsewhere, Reuters reported Gibraltar released an Iranian tanker that was at the center of a dispute between Britain and Iran for weeks, easing geopolitical tensions around maritime safety for oil tankers. The court ruling showed that Iranian vessel Grace 1 did not violate EU sanctions and there were no legal grounds for further detention. According to the report, the court ruling to release the tanker came despite a request from the United States for further detention.

Geopolitical tensions in the Strait of Hormuz have supported oil prices since mid-May, and the latest move to release the tanker might suggest Iran-related risks are subsiding from the oil price premium.

Looking forward, the Organization of Petroleum Exporting Countries will releases its monthly oil market report early Friday (8/16). Market participants will pay close attention to fresh estimates of the global supply and demand disposition along with July production rates from members of the OPEC block.

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

(BAS)