Crudes Fall as IMF Again Cuts Growth Outlook, USD Firms

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Except for the ULSD contract that settled the session 1.5% higher on rallying natural gas, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved lower Tuesday. That came after the consumer confidence data showed Americans feel more pessimistic about the economy than at any point in the last 18 months, dimming the outlook for discretionary spending while lending support for the U.S. dollar index ahead of an expected rate hike by the U.S. Federal Open Market Committee.

Additionally, International Monetary Fund cut its global growth projections to 3.2% this year, down 0.4% from the previous outlook, citing the lingering impact of inflation and the war in Ukraine as two major factors behind the downgrade.

In the United States, reduced household purchasing power and tighter monetary policy is likely to drive economic growth down to 2.3% this year and 1% in 2023, estimates IMF. In China, further lockdowns, and deepening real estate crisis would press growth down to 3.3% this year -- the slowest in more than four decades, excluding the pandemic, if realized. And in the euro area, growth is revised down to 2.6% this year and 1.2% in 2023.

"The world may soon be teetering on the edge of a recession," said Jeff Kearns, managing editor of the IMF blog.

Further evidence of economic slowdown could be found in U.S. consumer confidence data released Tuesday morning that showed Americans feel increasingly unhappy about the outlook for the economy and personal finances. The confidence index fell for the third straight month in July, slipping a larger-than-expected 2.7% to 95.7 compared with expectations for a 96.8 reading. The decline in confidence surprised some economists who felt gasoline prices that have declined from record highs in mid-June might spark some economic optimism.

Also on Tuesday, oil traders positioned ahead of the release of weekly inventory report from the American Petroleum Institute on tap for 4:30 p.m. EDT, followed by official data from the U.S. Energy Information Administration Wednesday morning.

U.S. oil inventories are anticipated to have declined by 700,000 barrels (bbl) for the week ended July 22, with estimates ranging from a decrease of 2.6 million bbl to an increase of 2.1 million bbl. Gasoline stockpiles are expected to have decreased by 100,000 bbl from the previous week, while stocks of distillates are seen to have increased 200,000 bbl from the previous week. Refinery use likely rose 0.4% point from the previous week to 94.1%.

Earlier in the session, the oil complex got a leg up on reports that Russia cut natural gas flow to Europe on the key Nord Stream 1 pipeline to 20% of capacity, potentially deepening an energy crisis across the continent while triggering gas-to-oil switching in heating and power generation. With Russian gas flow through Gazprom's Nord Stream 1 pipeline now cut to 20% 33 million cubic meters a day, it is increasingly likely the European Union will face a gas supply shortage and potentially gas rationing this winter, according to analysts.

Kremlin spokesman Dmitry Peskov said on Tuesday that only one turbine out of six at Russia's Portovaya compressor station that feeds gas into the pipeline remains in working condition, leading to the reduced gas flow. He gave no further details on how long the cut would remain in place -- a troubling sign for the EU as it struggles to refill gas storage ahead of winter.

Dutch Title Transfer Facility natural gas prices jumped by more than 17% to around 188 euros or $191.50 per megawatt/hour Tuesday in reaction to Gazprom's announcement. For perspective, European natural gas prices surged by almost 700% from a year earlier. If Nord Stream 1 gas flows are cut off completely, and if winter is colder than usual, Europe's gas storage may run out by the end of February, according to energy consultant Wood Mackenzie Ltd.

At settlement, NYMEX September West Texas Intermediate futures fell $1.72 to $94.98 per bbl, with ICE September Brent declining $0.75 to $104.40 per bbl. NYMEX August RBOB futures dropped 2.70 cents to $3.3550 gallon, and August ULSD futures registered a 6.73-cent gain to $3.5839 gallon.

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

Liubov Georges