DTN Oil

WASHINGTON (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange settled Friday's session mostly lower after purchasing managers' surveys showed manufacturing activity in the United States lost momentum this month, while the services sector slid into contraction for the first time since the beginning of the pandemic in early 2020.

Dismal economic data in the U.S. and Eurozone triggered some heavy selling in the oil complex Friday, with the front-month West Texas Intermediate finishing the week at the lowest settlement since early April. Business activity in the U.S. service sector unexpectedly contracted to a 26-month low of 47 in July from 51.6 the previous month, according to mid-morning data released by S&P Global Market Intelligence. A reading below 50 indicates contraction. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualized rate of approximately 1%, according to the report. The U.S. manufacturing PMI also decline, down to 52.3 from 52.7 in June to mark the weakest showing in two years.

Commenting on the data release, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, "The preliminary PMI data for July point to a worrying deterioration in the economy. Manufacturing has stalled and the service sector's rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook."

Further evidence of flagging demand could be found in this week's inventory report from the U.S. Energy Information Administration that showed gasoline stocks unexpectedly rose 3.5 million barrels (bbl) last week versus estimates for a rise of 400,000 bbl. Furthermore, the large build came despite a cut in refinery runs to 93.7% from 94.9% a week earlier, a bearish development in the middle of the summer's U.S. driving season, which runs from the Memorial Day in late May to the Labor Day holiday in early September.

In Europe, the manufacturing sector took a hard hit this month amid surging energy prices and fuel rationing by the industries, with the headline PMI reading falling to 49.6 in July compared to expectations for a 51.0 showing. The index hit a 25-month low.

The bloc's Services PMI also dropped sharply to 50.6 in July from 53.0 in the previous month. The indicator reached 15-month lows.

The eurozone economy looks set to contract in the third quarter as business activity slipped into decline and forward-looking indicators hint at worse to come in the months ahead, read the report.

On Thursday, the European Central Bank surprised the markets with a larger-than-expected rate hike of 50 basis points, with the rate hike the first in 11 years.

"The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting," the ECB said in a statement Thursday.

Inflation in the EU climbed to a record-high 8.6% in June, up from 8.1% in the previous month, dashing hopes for a retreat in high consumer prices. This comes against a backdrop of slowing growth, the war in Ukraine and threats to energy supplies.

At settlement, NYMEX September WTI futures declined $1.65 to $94.70 bbl, while the front-month Brent contract fell $0.66 to $103.20 bbl. NYMEX RBOB August futures gained 7.33 cents to $3.2228 gallon and August ULSD futures fell 13.47 to $3.4556 gallon.

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