DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied more than 3% Friday, with both crude benchmarks finishing the volatile week little changed as traders assessed recessionary risks in the United States against a tightening global oil market with less supply available in Libya and Russia amid sanctions and political turmoil.

Libya was back in the spotlight this week after violent protests once again disrupted more than 1 million barrels in daily oil production from the North African producer. Libya's oil minister said on Thursday that production has since recovered to 700,000 barrels per day (bpd) from just under 100,000 bpd seen earlier this month. That was welcomed news for the oil-consuming nations that are scrambling to look for additional supplies as crude from Russia, the world's third-biggest producer, comes under Western sanctions. Analysts believe that additional supplies from Libya could partially offset the loss of Russian oil on the global market but caution that production remains volatile amid political turmoil.

In financial markets, Federal Reserve Chairman Jerome Powell raised the probability of a recession in the U.S. tied to surging inflation and tightening monetary policy.

During testimony before the U.S. Senate Banking Committee on Wednesday, Powell cautioned that lowering rapidly broadening inflation without tipping the U.S. economy into a painful downturn would be "very challenging," and that a recession is "certainly a possibility."

"We do understand the full scope of the problem, and we're using our tools to address it pretty vigorously now," Powell testified this week. "Price stability is really the bedrock of the economy."

U.S. consumer prices, a gauge of inflation, climbed to 8.6% in May, with prices for essential items such as food and fuel accelerating rapidly from the previous month. Consumer sentiment in the U.S. slumped to a record low 50 in late June, according to the University of Michigan's closely watched survey, with consumers abruptly lifting their short- and long-term inflation expectations. Nearly 46% of respondents attributed their negative views about the economy to persistent price pressures. Just 13% expect their incomes to rise more than inflation, the lowest share in almost a decade.

Separately, U.S. Energy Information Administration was forced to delay its Weekly Petroleum Status Report until next week due to "systems issues," leaving traders to rely on the American Petroleum Institute for a weekly update on U.S. inventory levels. API data showed commercial crude oil inventories increased by a surprise 5.6 million barrels (bbl) during the week-ended June 17 -- the third consecutive weekly build. Building inventory likely signals slowing fuel demand as high gasoline prices prompt consumers to drive less while a slowing economy tilting closer to recession saps demand for diesel fuel. API reported gasoline inventories in the U.S. increased 1.216 million bbl last week compared with calls for a draw of 800,000 bbl, while distillate inventories fell 1.656 million bbl, missing an expected 300,000 bbl week-on-week increase.

At settlement, NYMEX August WTI futures climbed $3.35 to $107.62 bbl and ICE Brent crude for August delivery advanced $3.07 to $113.12 bbl. NYMEX RBOB July contract rallied 11.92 cents to $3.8848 gallon and NYMEX July ULSD futures gained 2.5 cents to $4.3629 gallon.

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