DTN Oil

NEW YORK (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled a volatile session on Monday mixed, with RBOB plunging 3.3% and ULSD 1.9% in response to concerns over expected lost demand growth this summer as the U.S. Federal Reserve is poised to raise interest rates aggressively at their meetings this week and in July to fight "unacceptable" levels of inflation.

U.S. economic growth is estimated to have slowed to 0.9% in the second quarter, according to the Federal Reserve Bank of Atlanta's GDPNow forecast, down from 2.5% seen just four weeks ago. As the growth outlook decelerates, odds for a recession are climbing rapidly, with Morgan Stanley CEO James Gorman seeing a 50-50 chance of an economic crisis in the months ahead. That's up from his earlier 30% recession-risk estimate, said Gorman, while adding "we're unlikely at this stage to go into a deep or long recession."

Faced with heightened risk for an economic contraction, investors on Wall Street broadly unloaded risk and snapped up safer assets. The Dow Jones Industrial Average fell 2.8% or 876.05 points, while the tech-heavy Nasdaq Composite declined 4.7%. The S&P 500 slumped 3.9%, with most company stocks included in the index down on the day. The decline puts the S&P 500 500 into bear market territory for the first time since 2020. Meanwhile, the yield on the benchmark 10-year U.S. Treasury note rose to 3.35% Monday from 3.156% on Friday.

Climbing inflation in the United States, which accelerated in May to a 40-year high 8.6% on an annual basis, has also spurred a rally in the U.S. dollar index ahead of this week's Federal Open Market Committee's two-day meeting on expectations central bank officials would need to tighten monetary policy more aggressively. The Federal Reserve previously signaled 50-basis point increases in the federal funds rate for both June and July, but Friday's consumer price index reading at a high last seen in 1982 has the market anticipating a 75-basis point hike in the key benchmark interest rate for July.

CME Group's FedWatch Tool shows 75.1% of market followers still expect a 50-basis point increase in the federal funds rate to be announced on Wednesday (June 15), which was lifted to a 0.75% to 1% target range by FOMC in early May, with 24.9% anticipating a 75-basis point increase. For the FOMC's July 27 meeting however, 53.8% of market followers expect a 75-basis point hike and 31.9% see the Fed maintaining previous guidance with a 50-basis point increase.

The U.S. dollar index rallied 0.76% to 104.947 Monday following Friday's 0.9% surge, nearing May's 105.065 20-year high.

Offsetting the bearish drivers, Libyan oil production was nearly fully halted on Monday as political strife led to more shutdowns of export ports and oil fields. Production is now down by over 1 million barrels per day (bpd), said Libya's Oil Minister Mohamed Oun. The OPEC member's daily output -- which averaged 1.2 million bpd last year -- is down by about 1.1 million bpd, suggesting Libya is now pumping only about 100,000 bpd. The fall in supply will further tighten a global market that has seen crude prices jump more than 50% this year to more than $120 bbl.

At settlement, July West Texas Intermediate futures were up $0.26 to $120.93 per barrel (bbl) and ICE August Brent futures were up $0.26 to $122.27 bbl. For oil products, July ULSD futures were down 8.33 cents at $4.2834 gallon, and July RBOB futures were 13.69 cents lower at $4.0353 after losing 10.4 cents in Friday's session.

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