DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session lower, with both crude benchmarks suffering their third consecutive week of losses. Those losses were triggered by the prospects of weaker global demand growth in the fourth quarter, with soaring inflation and a strengthening U.S. Dollar Index further weighing on the energy complex.

U.S. consumer sentiment this month plummeted to its lowest showing in a decade, according to the survey from the University of Michigan, with one-in-four American households citing diminished purchasing power and a reduction in living standards. The drop-off in sentiment has been triggered by rising inflation that surged to a 30-year high last month as well as a belief the Biden administration has failed to "develop effective policies to reduce the damage from rising prices," noted Surveys of Consumers Chief Economist Richard Curtin.

The consumer price index -- a measure of inflation -- spiked to 6.2% in the 12 months ending in October, delivering a gut-punch to an already slowing economic recovery. The Federal Reserve's long-held inflation target has been around 2%. President Joe Biden vowed this week to address rising gasoline and food prices, but no specific policy has yet been presented.

"Everything from a gallon of gas to a loaf of bread costs more," conceded Biden. "It's worse even though wages are going up. We still face challenges."

Speculation is swirling the White House might authorize additional sale of crude oil from the Strategic Petroleum Reserve, currently holding about 613 million barrels (bbl) of crude oil, which follows the sale of 20 million bbl that has been underway this fall. Analysts, however, estimate SPR sales would have limited impact on the market as it doesn't structurally change supply-demand fundamentals.

Faced with relentless rise in consumer prices, U.S. Federal Reserve could end its bond-buying stimulus program earlier than expected to position the markets for the first interest rate hike since March 2020. The Fed has already begun to back away from the narrative of "transitory inflation" in recent weeks, with a growing number of officials leaning toward raising interest rates next year instead of waiting until 2023. The high level of inflation, now three times above the central bank's targeted 2%, will be a driving force in determining market direction heading into the final weeks of the 2021 trading year.

The CME Group's FedWatch tool is now pricing in a 68.8% chance of a rate hike by June of next year, notably earlier than prior forecasts, while the benchmark two-year Treasury note yields are trading at 0.536%, more than double the Fed's target range of between 0% and 0.25%.

Further weighing on the oil complex this week, U.S. crude oil inventories increased for the third consecutive week through Nov. 5, reported the Energy Information Administration on Wednesday, easing concerns over tightening global oil market. Crude stockpiles rose by 1 million bbl from the previous week to 435.1 million bbl and are now about 6% below the five-year average. The build was realized even as domestic refiners hiked run rates while domestic production remained near a pre-pandemic high of 11.5 million barrels per day (bpd).

U.S. gasoline demand, meanwhile, fell 254,000 bpd or 2.5% from the previous week to 9.259 million bpd, suggesting consumers might be pulling back on gasoline purchases amid soaring prices. Earlier this week, EIA lifted its 2021 retail gasoline prices forecast by 3 cents to $3 gallon, with full-year gasoline consumption seen at 8.78 million bpd.

On the session, NYMEX West Texas Intermediate futures for December delivery retreated $0.80 to $80.79 bbl, and the international crude benchmark Brent contract for January declined to $82.17 bbl, down $0.70 on the session. NYMEX RBOB December futures eased 0.64 cents to $2.3114 gallon and front-month NYMEX ULSD futures fell 4.34 cents to $2.4037 gallon, with both products falling to five-week lows on their spot continuation charts during the session.

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