WASHINGTON (DTN) -- Closing out the week as it began, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied into Friday's close. All contracts posted weekly gains between 3.5% and 4.5%, propelled by an accelerating trend in gas-to-oil switching in the European Union and Asia, with depleted inventories and rallying natural gas prices boosting petroleum product demand in the fourth quarter.
Limiting these gains are ongoing concerns over a record run in consumer prices and sagging business confidence in some major economies in the Northern Hemisphere. Global supply chain disruptions, a reduced labor force and ongoing energy crunch in China and European Union are seen undermining the post-pandemic recovery. In China -- Asia's largest economy -- the producer price index posted the largest increase on record in September, according to National Bureau of Statistics data released Friday morning, highlighting consistent inflationary pressures from rising commodity prices.
Domestically, consumer sentiment once again dropped to a near decade-low reading last month, according to a University of Michigan survey, with inflation concerns front-and-center on everyone's minds.
"Consumer sentiment has remained for the past three months at the lows first recorded in response to last year's shutdown of the economy," said Surveys of Consumers Chief Economist Richard Curtin. "There is another, less tangible factor that has contributed to the slump in optimism: confidence in government economic policies has significantly declined during the past six months."
Despite those headwinds, Americans were still eager to spend at a solid clip in September, a sign of resilient demand as consumers head into the holiday shopping season. U.S. Department of Commerce said on Friday retail sales advanced 0.7% in September, compared with a negative 0.1% expected by the economists, rising 13.9% against a year earlier. Consumer inflation increased 5.4% in that time, according to the U.S. Labor Department.
A growing number of Federal Reserve officials are voicing their concerns that inflation may indeed stay for longer as a result of rising commodity prices and supply chain constraints.
St. Louis Federal Reserve President James Bullard said in a recent interview the case for inflation to dissipate over the next six months has weakened considerably, adding that current high levels for core Consumer Price Index are "concerning."
His comments were echoed by Philadelphia Federal Reserve official Patrick Harker, who suggested the central bank start tapering its $120 billion a month in asset purchases as early as next month. The Federal Open Market Committee will next meet on Nov. 2-3, with consensus among officials growing for the central bank to make its tapering announcement.
Dominating headlines this week was once again the developing energy crisis in the EU and China, where depleted gas inventories and rolling backouts boosted demand for petroleum products. The International Energy Agency this week said global oil consumption will grow 5.5 million barrels per day (bpd) this year, up 170,000 bpd from their previous assessment, due to gas shortages in the EU and Asia. Next year, demand is seen growing by 3.3 million bpd to above pre-COVID levels of 99.6 million bpd.
Further contributing to the higher demand outlook is the declining number of new COVID-19 cases and improved mobility in the United States and EU. Global gasoline demand is currently running 2% below pre-COVID levels compared with a deficit of more than 10% at the start of the year. As a result, crude oil stockpiles held by countries that are part of the Organization for Economic Cooperation and Development were drawn down 23 million barrels (bbl) in September to the lowest level since March 2015 and well below the five-year average. On the supply side, the agency estimates OPEC+ spare capacity will decline sharply next year to below 4 million bpd from 9 million bpd in the first quarter.
On the session, West Texas Intermediate November futures advanced $0.97 to settle at $82.28 bbl and the international crude benchmark Brent contract for December delivery gained $0.86 to $84.86 bbl. NYMEX ULSD November contract advanced 1.23 cents to $2.5737 gallon and front-month RBOB rallied 5.14 cents or 1.7% to $2.4864 gallon.
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