DTN Oil

WASHINGTON (DTN) -- After rallying more than 2% early in the session, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday with mixed results. That came after government data from Bureau of Economic Analysis showed the U.S. economy shrunk for the second consecutive quarter in ending June, entering into what many economists call a technical recession under pressure from soaring inflation, rising interest rates, and downtrend in consumer spending.

These headwinds among others are thought to increasingly weigh on a still-resilient labor market that has added more than 1 million jobs in the second quarter at a time when the U.S. economy shrunk by 0.9%, according to BEA estimates released Thursday morning.

Gross domestic product, a broad measure of the goods and services produced across the economy, contracted by a steeper 1.6% annualized pace in the first three months of 2022. The consecutive quarters with negative GDP mark a rare contraction that many economists attribute to the distortions created by excessive government spending during 2 1/2 years of the pandemic.

Whether or not the United States is facing a recession, former Treasury Secretary Larry Summers warned that when inflation is as high as it is, at 9.1% in June according to the consumer price index, and the labor market is very tight, a recession has always followed, adding that "a soft landing represents a kind of triumph of hope over experience."

Pushing back against that view, Treasury Secretary Janet Yellen on Thursday gave a glass-half-full assessment of the economy, acknowledging a slowdown that she called necessary to tame inflation while rejecting the notion the country had entered a recession.

"We do see a significant slowdown in growth," Yellen said at a news conference on Thursday. She said a true recession is a "broad-based weakening of the economy. That is not what we're seeing right now."

GDP data has certainly fired up the debate in markets and on Capitol Hill over whether the U.S. is heading for a significant slowdown in coming months or not. While two straight quarters of economic contraction fit a broad definition of a "technical" recession, its confirmation would not come until months later when the National Bureau of Economic Research determines it to be.

Despite the negative GDP print, stocks on Wall Street rallied again on Thursday as the U.S. dollar softened in afternoon trading to settle the session 0.09% lower at 106.236, initially boosting the oil complex.

West Texas Intermediate futures for September delivery fell to $96.42 per barrel (bbl) at settlement after trading as high as $99.84. Brent September futures registered a $0.52 gain for a $107.14-per-bbl settlement ahead of the contract's expiration Friday afternoon, while the next-month delivery October futures expanded its discount to September delivery to $5.31 per bbl. NYMEX August RBOB contact settled the session 3.58 cents higher at $3.4646 gallon, while sharply expanding its premium to September contact to 36.28 cents, suggesting a short squeeze ahead of the contract's expiration Friday afternoon. NYMEX August ULSD futures declined 3.10 cents to $3.6863 per gallon, while the September contract settled the session with a 7.25-cent discount.

Earlier in the session, oil complex got a leg up from weekly inventory data released by the U.S. Energy Information Administration on Wednesday that showed commercial crude oil, gasoline, and distillate fuels in the United States fell by a combined 8.6 million bbl during the third week of July along with another steep decline in the Strategic Petroleum Reserve, down 5.6 million bbl. A sizable 4.5 million bbl drawdown in commercial crude stocks was realized as U.S. crude exports surged to its highest weekly rate on record at 4.548 million barrels per day, signaling strong demand for U.S. crude amid international sanctions on Russian, Iranian and Venezuelan oil.

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

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