DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session mixed, with the front-month ULSD futures retreating to the lowest level since March 16 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 for oil and petroleum products.

At settlement, NYMEX West Texas Intermediate posted little change to finish the week at $85.11 barrel (bbl), while the international crude benchmark for November delivery gained to $91.35 bbl, up by $0.51 from the previous session. NYMEX October RBOB futures declined 1.30 cents to $2.4157 gallon, while the front-month ULSD futures fell 3.27 cents to $3.1725 gallon.

Federal Reserve officials will likely signal a more hawkish stance on inflation and interest rates when they hold their policy meeting next week, with Feds Funds Rate futures indicating borrowing rates will climb to 4% by December from the current 2.25% to 2.50% and stay high through 2023. This week's economic data solidified the case for a 75-basis-point rate increase for month of September, with odds rising for the central bank to hike rates even more aggressively. 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 forecast 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.

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