DTN Oil

WASHINGTON (DTN) -- Erasing earlier losses triggered by investor concerns over China's economic growth outlook, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session higher amid trader positioning ahead of congressional testimony by Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday.

WTI futures settled at a $80.46-per-barrel (bbl) nearly six-week high on Monday, lent support by a weaker U.S. dollar ahead of a busy week of economic data and two days of testimony by Powell.

When Powell last appeared before Congress in June 2022, inflation had reached a four-decade high of 9.1% and showed no sign of easing. U.S. central bank sharply raised its benchmark lending rate from 0% to 4.5% in the past year to combat accelerating prices and annualized inflation has been falling for the past seven months. Still, the economy has not cooled enough to bring down inflation to its 2% target, and the recent trend might suggest consumer prices are reaccelerating.

Consumer spending has remained strong, hiring is still robust, and the services sector of the economy continues to expand. Nobel Prize-winning economist Paul Krugman admitted in his recent New York Times column that he was genuinely confused by the state of U.S. economy, adding that "We don't have a clear picture of what's happening to inflation right now."

Against this backdrop, Powell's task to correctly shape market expectations about the economy and the path of the federal funds rate this year is exceptionally challenging. Last month, Powell praised the beginning of the "disinflationary process" that began in the housing and manufacturing sectors but has yet to spread into larger sectors of the economy. That sentiment might be misplaced.

Institute of Supply Management reported last week business activity in the manufacturing sector contracted to its lowest level since May 2020, when the U.S. economy was under lockdown, but prices paid by producers jumped 6%, meaning parts of the economy are gradually entering stagflation.

Aside from Powell's testimony, investors await the release of the U.S. non-farm employment report for February scheduled for release on Friday, March 10. U.S. job growth likely moderated last month after a blistering January pace of more than 500,000 jobs, while the national unemployment rate likely held at a 53-year low of 3.4%, illustrating a labor market that's proved resilient to the Fed's aggressive interest-rate hikes.

Earlier in the session, the oil complex came under selling pressure after China downgraded its growth target to 5% this year -- a marked stepdown from the pre-pandemic expansion rate above 6%. For context, China's annual GDP growth averaged just below 7% from 2014 through 2019. The conservative target might suggest China's Communist Party does not see the potential for robust growth this year or is unwilling to step up the stimulus that has long been promised to support post-COVID growth.

Equities in Asian markets plunged, losing roughly 0.3% in Shanghai as investors assess the ramifications of China's 5% growth target. This has pressured industrial commodities like iron ore and copper, which fell in the morning session alongside oil on fears that demand in the Asian market would be weaker than some investors had anticipated.

At settlement, the NYMEX WTI April contract advanced $0.78 to $80.46 per bbl, while the international crude benchmark Brent contract for May delivery gained $0.35 to $86.18 per bbl. NYMEX RBOB April futures added $0.0461 to $2.7965 per gallon, and ULSD April futures dropped back $0.0265 to $2.8866 per gallon.

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