DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange accelerated losses in afternoon trading Tuesday, with both crude benchmarks settling the session down 3% near 11-month lows. The losses came amid a one-two punch of an intensifying selloff across equity markets sparked by renewed fears of more aggressive interest rate hikes from the U.S. Federal Reserve and signs of softening fuel demand.

Tuesday's selloff in the oil complex and broader financial markets was sparked after better-than-expected economic data fueled expectations the Federal Reserve would have to raise interest rates more aggressively next year to clamp down on inflation. JP Morgan Chase CEO Jamie Dimon echoed this sentiment on Tuesday, saying during an interview with CNBC's "Squawk Box" that inflation would push the economy into recession. Inflation and its impact on the consumer "may very well derail the economy and cause a mild or hard recession that people worry about," said the Wall Street bank CEO.

On Monday, the Institute of Supply Management reported that business activity across the service sector of the U.S. economy increased 9% in November to 64.7%, with the headline number for services PMI at 56.5% showing a sharp expansion in the fourth quarter. Expansion in the service sector followed a robust employment report on Friday from the Bureau of Labor Statistics that included sharp wage gains.

While this is great news for the economy on one hand, strong consumer spending and climbing wages are driving inflation higher, which is seen forcing the Federal Reserve to hike interest rates even more aggressively.

The Federal Open Market Committee raised the federal funds rate six times so far this year, with the last four increases a historically large 75 basis points. FOMC is widely expected to hike the federal funds rate by 50-basis points when they meet next on Dec. 13-14.

The federal funds rate is now in a 3.75%-to-4% target range and expected to reach and hold at 5% in the second quarter 2023 in what is called the terminal rate. Dimon's comments join the opinion of former Treasury Secretary Lawrence Summers, who last week said the terminal rate would likely be higher to bring down inflation that he believes "is going to be a little more sustained than what people are looking for."

Worries over recession were compounded by signs of deeper demand losses in the final weeks of the year amid higher interest rates after gasoline consumption during the Thanksgiving holiday missed expectations with a flat showing of 8.317 million barrels per day (bpd). Over the four weeks through Nov. 25, gasoline supplied to the U.S. market averaged 8.6 million bpd, down 6.1% from the same period last year, according to data from the Energy Information Administration. Implied distillate fuel demand also declined for the fourth consecutive week through Nov. 25, down 190,000 bpd last week to a 3.656 million bpd 10-week low.

At settlement, January West Texas Intermediate futures declined by $2.68 to $74.25 per barrel (bbl), and February Brent futures on ICE tumbled by $3.33 to $79.35 per bbl. January RBOB futures dropped to a $2.1491-per- gallon 11 1/2-month low settlement on the spot continuation chart, down $0.0528, and the January ULSD contract slide $0.0843 to a $2.9155-per-gallon nearly 10-month low on a spot continuous basis.

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