DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange eroded further in early morning trade Friday, with all petroleum contracts on course for hefty losses this week after overnight data out of Europe showed manufacturing activity unexpectedly contracted in July, heightening concerns about recession in the bloc, while the return of Libya's oil exports to the global market further weighed on the complex.

The Eurozone Manufacturing purchasing managers index fell to a 25-month low 49.6 in July compared with expectations for a 51.0 showing. Concerns over weakening demand were exacerbated by energy, supply and inflation worries to push business expectations lower, and also cause a pullback in new hiring.

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

"The eurozone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead," S&P Global Chief Business Economist Chris Williamson, commented on the data release.

Excluding pandemic lockdown months, July's contraction is the first signal by the PMI since June 2013, indicative of the economy contracting at a 0.1% quarterly rate. Although only modest at present, a steep loss of new orders, falling backlogs of work and gloomier business expectations all point to the rate of decline gathering further momentum as the summer progresses.

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.

Compounding the bearish development, Libya is restoring oil production, with output rising above 700,000 barrels per day (bpd) after restrictions on exports were lifted. Output is expected to return to 1.2 million bpd within a week to 10 days, according to government officials. The premium of the nearest crude futures contract over the next month eased, indicating cooling concerns about market scarcity.

Near 7:15 a.m. EDT, NYMEX September West Texas Intermediate futures declined $1.58 to $94.75 barrel (bbl), while the front-month Brent contract fell $1.52 to $102.34 bbl. NYMEX RBOB August futures slumped 5.32 cents to $3.0963 gallon and ULSD futures fell 3.69 cents to $3.5534 gallon.

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