DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange retreated early Monday, sending the U.S. crude benchmark as much as 1.5% lower following a trio of weaker-than-expected economic data from China, pointing to a broad-based slowdown in the world's second largest economy, while domestically traders monitor the path of Tropical Storm Fred with expectations for heavy flooding and storm surge along the coast of Florida's Panhandle and Big Bend area to disrupt gasoline demand.

At the beginning of the new trading week, oil and equity futures dropped sharply amid signs of an economic slowdown in China, with last month's retail sales, industrial production and fixed asset investment falling far short of expectations. Retail sales, a key measurement of consumer spending in the world's second largest economy, fell 0.13% in July, down from the 0.48% increase in June, and below the projection for 11.5% annualized growth.

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, grew by 6.4% in July from a year earlier after an 8.3% rise in June. July's figure was below the median forecast for a rise of 7.9%.

"Given the combined impact of sporadic local outbreaks of COVID-19 and natural disasters on the economy of some regions, the economic recovery is still unstable and uneven," said NBS spokesman Fu Linghui.

Faced with growing outbreaks, Chinese health officials tightened restrictions on mobility and businesses in several metropolitan areas, suspending airfare and rail service. Last week, China closed the key port of Ningbo-Zhoushan, the world's largest shipping port by cargo tonnage, after a single case of COVID-19 infection sparked fears of an outbreak. The abrupt closure will further disrupt already strained supply chains, while raising shipping costs to the ports of North America and European Union ahead of the peak holiday season.

At the start of July, Goldman Sachs trimmed its forecast for China's growth to 2.3% from 5.8% for the third quarter, while also cutting its full-year forecast to 8.3% from 8.6%.

Domestically, Tropical Storm Fred is expected to impact the Gulf of Mexico over the next 48 hours with heavy rains and winds in excess of 50 knots, while also bringing dangerous storm surge along the coast of Florida's Panhandle and Big Bend area. As of Monday morning, most of the schools and all outdoor events across the region have been closed. Fred had been downgraded but regained its tropical storm status Sunday morning over the Gulf of Mexico and is forecast to gradually increase in strength as it tracks through the warm waters of the gulf Monday. The development is bearish for regional gasoline demand, with seasonal decline in consumption seen steeper this year due to the lack of commute to work and rising tally of COVID-19 infections. The U.S. Energy Information Administration forecasts gasoline consumption won't return to pre-pandemic levels even next year, averaging about 9 million barrels per day (bpd), some 300,000 bpd below 2019-levels.

The relentless rise of COVID-19 infections and souring consumer sentiment might provide some clues for the trajectory of gasoline consumption in the coming weeks. The University of Michigan on Friday reported the consumer sentiment index plunged a staggering 13.5% in early August to a level that was just below the April 2020 low of 71.8. The losses in confidence were widespread across income, age, and education subgroups and observed across all regions.

In early morning trading, NYMEX September West Texas Intermediate futures dropped $1.20 to trade just above $67.23 per barrel (bbl), and international crude benchmark Brent contract for October delivery fell $1.11 to $69.49 bbl. The NYMEX September RBOB contract plunged 3.33 cents or 1.5% to $2.2295 gallon and NYMEX September ULSD futures moved down to $2.0550 gallon.

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