DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed early Friday, although all petroleum futures contracts are heading for a third weekly loss amid persistent fears that higher interest rates from the Federal Reserve in coming months will push the U.S. economy into a recession, denting demand growth for oil and petroleum products.

This week's economic data solidified the case for at least a 75-basis-point rate increase at the Federal Open Market Committee meeting on Sept. 20-21, with odds rising for the central bank to hike rates even more aggressively. The odds for a 100-basis-point move from the Fed next week, which would be the biggest since 1984, are currently holding around 20%, based on data reflected in the CME Group's Fed Watch, with bets on follow-up hikes likely to lift the Fed Funds rate to between 4.25% and 4.5% by the end of February.

Inflation in the U.S. shows no signs of abating, with core consumer prices accelerating by 0.6% in August, double the increase seen over the month of July, even as gasoline prices declined in both months. U.S. retail sales for August showed continued demand for goods and services despite rapidly tightening financial conditions and high inflation. Americans spent more on groceries, cars, and apparel as gasoline prices fell for the second month through August, potentially boosting inflation for core consumer goods. Excluding gas stations, actual retail sales rose by 0.8% in August, up sharply from a negative 0.2% seen in the previous month. Continued strong job growth and rising wages are likely giving consumers a tailwind, even as they grapple with rapidly rising prices for everyday goods. Economists say that alone would keep the Federal Reserve on track to raise the benchmark federal funds rate in an effort to slow demand and inflation.

The World Bank this week forecasted the global economy would see the steepest slowdown since the early 1970s, adding that a "moderate hit to the global economy over the next year could tip it into recession."

"To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production," said World Bank President David Malpass. "Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction."

The expected slowdown of the business cycle and potential for recession is evident in diesel markets where demand for the middle of the barrel fuel that closely correlates with economic performance plunged more than 35 cents this week. Diesel supplied to the U.S. market slumped 17% last week alone to the lowest level since December 2020 at 3.132 million barrels per day (bpd). Over the past four weeks, distillate fuel consumption averaged 3.6 million bpd, down by more than 11% from the same period last year.

Friday's move higher is supported by solid economic data out of China, showing better-than-expected gains for retail sales and industrial output over the month of August. China's retail sales grew by 5.4% in August from a year ago, the fastest pace since the January-February period this year, according to the report released by the National Bureau of Statistics. Industrial production rose by 4.2% in August from a year earlier, beating the 3.8% increase estimated by the economists. Despite a year-on-year decline in major categories such as cement and steel, autos proved to be a bright spot, with passenger car production surging by 33%.

Near 9:00 a.m. EDT, NYMEX West Texas Intermediate added $0.15 to trade near $85.12 barrel (bbl), while the international crude benchmark for November delivery gained to $91.19 bbl. NYMEX October RBOB futures declined by 1.54 cents to $2.4152 gallon, while the front-month ULSD futures gained 0.66 cents to $3.1788 gallon.

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