DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent crude softened early Friday following this week's downward revisions to global oil demand projections from all major foresting agencies, while a strengthening U.S. Dollar Index in reaction to a hotter-than-expected inflation print for September further pressured the oil complex.

The greenback's strength also comes ahead of more economic data releases in the United States, including retail sales for September and the consumer sentiment index for early October. Both data points will be closely watched by markets to gauge the U.S. economy's performance against a backdrop of surging inflation and aggressive rate hikes by the Federal Reserve.

Retail sales, which are not adjusted for inflation unlike many other government reports, have mostly risen in recent months amid higher prices for nearly all consumer items. Retail sales grew 0.3% in August from the month before, a reversal after July's 0.4% drop, which largely reflected falling gasoline prices. Median consensus calls for September retail sales to have gained 0.2% from August, with the purchase of core goods, excluding gasoline and vehicles, to have risen at a faster clip of 0.4%.

Thursday's consumer price index report released by the Bureau of Labor Statistics confirmed market fears that inflation in the U.S. economy is becoming more entrenched, broadening into the services sector that generally comprise about 80% of economic output. Core CPI, excluding volatile food and gasoline prices, surged to 6.6% in September -- the highest reading since 1982. Typically, services components of the CPI have a strong tailwind that will require more aggressive rate hikes and recession-like step-down in consumer demand to cool that part of the economy.

Following the data's release, Fed's Funds Rate futures priced in a 96.6% chance for the central bank to raise interest rates by another 75 basis points during their Nov. 1-2 meeting, which would be the fourth consecutive rate increase of this magnitude.

Near 7:30 a.m. EDT, the U.S. Dollar Index resumed its trend higher against a basket of foreign currencies to trade 0.55% higher at 112.870. NYMEX November West Texas Intermediate futures fell below $88 barrel (bbl), down $1.40, and ICE December Brent futures dropped $1.35 to $93.20 bbl. NYMEX November ULSD futures retreated 10 cents to $3.9935 gallon -- after climbing to 3 1/2-month high settlement on the spot continuous chart on Thursday. November RBOB futures dropped 7 cents to $2.6330 gallon.

Underlying losses in the oil complex this week are downward revisions to global oil demand projections from the Organization of the Petroleum Exporting Countries and Paris-based International Energy Agency. IEA projects global oil demand will contract by 340,000 barrels per day (bpd) in the current fourth quarter, pressing year-over-year consumption growth to 1.9 million bpd in 2022 and to 1.7 million bpd next year.

The relentless deterioration of the economy and higher prices sparked by an OPEC+ decision to cut production are slowing world oil demand and could be the tipping point for a global economy already on the brink of recession, said IEA. Similar sentiment was echoed in OPEC's Monthly Oil Market Report released earlier this week showing global oil demand to expand by 2.64 million bpd or 2.7% in 2022, down 460,000 bpd from the previous forecast.

"The world economy has entered into a time of heightened uncertainty and rising challenges, amid ongoing high inflation levels, monetary tightening by major central banks, high sovereign debt levels in many regions as well as ongoing supply issues," said OPEC.

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