DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the last trading session of August sharply lower, with both crude benchmarks falling for the third consecutive month as traders see an increased likelihood for a revival of the 2015 nuclear agreement with Iran that could unleash millions of barrels of oil into a weakening market.

More evidence of demand destruction could be found in this week's inventory report from Energy Information Administration showing four-week gasoline consumption in the United States at 8.9 million bpd was well below the 2021 consumption rate and on par with 2020 when travel restrictions due to the COVID-19 pandemic were still in place limiting personal movement.

It's clear falling prices at the gas pump are not enough of an incentive to lure Americans back to the roads. American Automatic Association found that almost two-thirds of U.S. adults have already changed their driving habits or lifestyle since March. Drivers' top two changes to offset high gas prices are driving less and combining errands. With summer driving season officially ending with the Labor Day holiday (Sept. 5), there is little hope that gasoline demand would improve above its historic norms heading into the colder months.

Prospects for distillate demand don't look much brighter. EIA data show distillate consumption in the United States eroded for the third consecutive week through Aug. 26 to 3.566 million bpd -- the lowest level since the week leading up to July 4th holiday. Against last year's level, distillate fuel supplied to the U.S. market fell 824,000 bpd or over 18%. Demand for middle distillate fuel typically correlates closely with economic activity that is expected to weaken further as the Federal Reserve moves to fight historically high inflation.

On Friday, Fed Chairman Jerome Powell said the central bank is nowhere near the end of its battle against inflation and will remain resolute even if the U.S. economy tips into recession.

On the supply side, traders see an increased likelihood of a positive resolution in bringing Iran back into compliance with the 2015 Joint Comprehensive Plan of Action following 14 months of negotiations. If the deal is reached, Iran could immediately dispatch a sizable cache of crude stored in offshore storage that is estimated somewhere between 60 and 90 million bbl. This supply could offer immediate relief for European buyers who are on course to embargo Russian seaborne oil exports, which come into force in January 2023.

Inflation in the Euro area climbed to a new record-high 9.1% in August, up from 8.9% in the prior month, according to a flash estimate from Eurostat, the statistical office of the European Union. Nine out of 19 members of the Euro area recorded double-digit inflation, with Latvia, Estonia, and Lithuania enduring a rise in consumer prices above 20% year-on-year. Looking at the main components of the inflation print, energy saw the highest annual rate in August at 38.3% compared with 39.6% in July, followed by food, alcohol and tobacco at 10.6% compared with 9.8% in July, non-energy industrial goods at 5% compared with 4.5% in July, and services at 3.8% compared with 3.7% in July.

Power prices across the European Union spiked nearly tenfold over the past few months, prompting widespread shutdowns of industrial operations and inflicting pain on struggling consumers. In August, consumer sentiment in the EU plunged to a negative 24.9 -- the second lowest reading on record after a negative 25 recorded in April 2020.

At settlement, NYMEX October West Texas Intermediate futures fell $2.09 to $89.55 bbl, while international crude benchmark Brent for October delivery expired at $96.49 bbl, down $2.82. The November Brent contract settled the session $2.20 lower at $95.64 bbl. NYMEX September RBOB futures fell nearly 9 cents to expire at $2.6059 per gallon and the October contract expanded its discount to 17.51 cents with settlement at $2.4308. NYMEX September ULSD futures retreated 10.17 cents to $3.7154 gallon and the October ULSD contract settled at $3.6674 gallon, down 11.04 cents.

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