DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session mixed, with both crude benchmarks gaining 1.5% underpinned by discussions for a new round of sanctions against Russian oil and exports with investors awaiting details of ongoing negotiations among the Group of Seven wealthy democracies, while RBOB and ULSD contracts came under selling pressure amid signs of renewed weakness in U.S. manufacturing.

Manufacturing activity in Texas slowed sharply in June, plunging to the lowest level since May 2020, when the country was in lockdown amid the COVID-19 pandemic, according to a survey released by the Federal Reserve Bank of Dallas. The index for general business activity, which assesses broader business conditions, fell to minus 17.7 from minus 7.3 the previous month, well below the zero threshold which separates expansion from contraction.

"You can't ignore the economic fundamentals leading to a likely recession, and the administration [in Washington] is either stubborn or as paralyzed as a deer in headlights," said a transportation equipment manufacturer in Texas. "The Federal Reserve is slow to react and will have to hit the brakes harder than they should have had to do."

U.S. Federal Reserve hiked interest rates by a rare 75-basis points in mid-June, the greatest single meeting increase in the federal funds rate since 1994, to combat rising consumer prices, with more aggressive interest rate increases likely in coming months.

U.S. gross domestic product is now expected to grow 2.9% in 2022, lower than its recent forecast of 3.7% in April, IMF Managing Director Kristalina Georgieva said in an annual assessment of U.S. economic policies over the weekend.

"Based on the median projection for the policy rate published at the June [Federal Open Market Committee] meeting, we expect the U.S. economy will slow in 2022-23 but narrowly avoid a recession."

Bureau of Economic Analysis will release its third estimate for first-quarter U.S. GDP on Wednesday, with economists projecting a 1.4% drop in economic activity for the first three months of 2022 compared with the second reading of a 1.5% contraction.

Higher settlements for West Texas Intermediate and Brent contracts advanced Monday following reports G7 nations are considering a new round of sanctions against Russia for its invasion of Ukraine, including a price cap on Russian crude oil sold under Western insurance and shipping mechanisms. Although details are still being finalized, with the G7 Summit to conclude on Tuesday, the proposal reportedly includes an exemption to the European ban on insuring shipments of Russian oil that would allow insurers to cover those shipments only if the sales price falls under a cap. No details of what that price cap would look like have been released. G7 nations are set to issue coordinated steps on Tuesday, according to people familiar with negotiations.

Italian Prime Minister Mario Draghi told the meeting that the price cap is "a promising avenue" against Russia because it would cut financial flows to Moscow while reducing inflation, which has surged across the West partly driven by energy prices.

In the European Union, the annual rate of inflation surged to a record high 8.1% in May, with energy being the primary driver of rising consumer prices. Some EU member states recorded a double-digit rise in consumer prices this spring -- well ahead of the United States and the rest of the world.

Analysts say that the real challenge of the agreement is to get commitment from nations outside the G7, notably China and India that have ramped up their purchases of Russian oil under steep discounts. India bought an average of 1 million bpd of Russian crude oil in June compared with 30,000 bpd in February, according to Kpler data. That puts India's purchases at more than a quarter of Europe's total.

Amid ongoing challenges to effectively limit Russian oil on the global market, top oil and gas executives in France called for immediate conservation of electricity, gas, and oil to be better prepared for winter amid mounting concerns about shortages.

"We must collectively take action on energy demand by reducing our consumption to recoup margins of maneuver. We will need them to manage the coming consumption peaks and to smooth out technical events or geopolitical shocks that we may have to face," wrote the CEOs of Electricite de France SA, Engie SA, and TotalEnergies SE in a joint opinion piece Sunday in Le Journal du Dimanche.

At settlement, NYMEX August WTI futures advanced $1.95 to $109.57 bbl and ICE Brent crude for August delivery rallied above $115 bbl, up $1.97 on the session. NYMEX July RBOB contract declined 4.76 cents to $3.8372 gallon and NYMEX July ULSD futures plummeted 13.27 cents to $4.2302 gallon.

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