DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session higher. The gains came after the U.S. gross domestic product expanded more than expected in the three months ending in September, halting two consecutive quarters of negative growth despite broadening inflationary pressures and rising interest rates from the Federal Reserve.

Limiting gains for the oil complex was a rebound in U.S. dollar index that jumped back to the 110-level after European Central Bank President Christina Lagarde warned of an increased likelihood for a recession in the Eurozone as the central bank lifted interest rates to the highest level in more than a decade. ECB officials delivered a second straight 75-point rate hike on Thursday, matching expectations by economists, but softened language around their commitment to raise rates further for "several meetings" to simply saying they expect borrowing costs to be raised "further."

"Economic activity in the euro area is likely to have slowed significantly in the third quarter...," said Lagarde, adding "further slowdown" is expected in the first quarter next year.

Eurozone manufacturing data for October revealed sharp deterioration in business conditions along with plunging consumer confidence that has been hammered by rising energy costs and protracted war in Ukraine.

In recent weeks, many EU governments introduced plans to cap gas and electricity prices for businesses and consumers, but by doing so, they aggravated the outlook for inflation. Central banks have repeatedly warned that fiscal policy must not work against monetary policy. A near collapse of Britain's gilt market brought by the plan to cut taxes from former Prime Minister Liz Truss serves as a timely reminder.

Domestically, Department of Commerce on Thursday reported the economy expanded 2.6% for the third quarter following a 0.6% contraction reported for the three months ending in April and 1.5% fall seen over the first quarter. While the headline number came in better than expected, underlying fundamentals show signs of a broad slowdown amid faltering consumer and business spending. Further details of the report showed Americans shifted spending from goods to services as was expected, but at a slower pace. Businesses significantly cut their investments.

Recent economic data showed U.S. consumer sentiment slumped more than many measures of actual output and spending, and business activity in manufacturing and services unexpectedly fell deep into contraction which is typically associated with recession. The outlier is a persistently strong labor market, with unemployment claims barely budging in October.

Combined with bearish economic data, reports of acute diesel shortages along the U.S. East Coast are likely to worsen the outlook for the fourth quarter. Distillate stocks in New England PADD 1A and Central Atlantic PADD 1B fell again last week to the lowest level on record for the months just before the winter, and to a 10-year low in Lower Atlantic PADD 1C, exacerbating fears over potential fuel rationing this heating season which begins Nov. 1.

Historically low distillate inventory along the East Coast is realized despite full pipelines delivering to the region, with the Colonial Pipeline on Wednesday extending a freeze on nominations on its main distillate line that originates in Houston because demand by shippers to move fuel on the pipeline exceeds its 1.16 million-barrel-per-day throughput capacity.

At settlement, December West Texas Intermediate futures advanced $1.17 to $89.08 per barrel (bbl), and ICE December Brent gained to $96.96 per bbl, up $1.27 per bbl on the session. ULSD futures for November delivery surged 21.38 cents to a fresh four-month high $4.3339 per gallon settlement, and November RBOB futures advanced 11.22 cents to $3.0116 per gallon.

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