DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply in afternoon trading Tuesday, sending West Texas Intermediate to the lowest settlement since March 31. The decline came on fresh signs U.S. consumers are pulling back on spending ahead of the summer travel season.

The U.S. consumer confidence index fell to a nine-month low 101.3 in April, reflecting persisting worries over a recession and concern over the labor market.

"Compared to last month, fewer households expect business conditions to improve and more expect worsening of conditions in the next six months. They also expect fewer jobs to be available over the short term," said Ataman Ozyildirim, senior director of economics at The Conference Board.

Interestingly, April's decline in consumer confidence reflects a deterioration in the outlook for consumers under 55 years of age and for households earning $50,000 and over.

More evidence of a consumer pullback can be found in high-frequency data published by OpenTable.com that showed seated diners at restaurants across the United States over the first two weeks of April were 7% below the comparable two weeks in 2022, the largest year-on-year decline so far in 2023. That doesn't bode well for gasoline demand in the U.S. that correlates closely with the strength of the labor market and discretionary spending.

U.S. macroeconomic data for the month of April have been mixed so far, showing marginal rebounds in regional manufacturing activity but a broader pullback in consumer spending. The Dallas Federal Reserve's Manufacturing Survey released Monday showed industrial activity in the region turned choppy in April after a slight upswing recorded in the prior month, with business outlook remaining deeply negative.

"There is a definite slowdown. New orders virtually stopped. We are hoping it is short lived," said a representative with a machinery manufacturer. "We are in the trucking industry. There has been some continued degradation of indicators in our market, such as dropping freight rates. We are still planning on a solid business year but with some decrease compared with the past 12 months," said a representative with a transportation equipment manufacturer.

Against this backdrop, the U.S. Bureau of Economic Analysis is set to publish its first look at first-quarter gross domestic product with the annualized growth rate expected to slow to 2% from 2.6% seen over the final three months of 2022.

In a note released Monday, Goldman Sachs said American households continue to rapidly draw down excess savings to offset inflationary pressures, and that is being one of the major factors depressing overall economic growth. The investment bank forecasts U.S. GDP growth to ease to 0.6% for the second and third quarters before rebounding slightly to 0.9% in the final three months of the year.

Also on Tuesday, oil traders positioned ahead of the weekly inventory report from the American Petroleum Institute scheduled for a 4:30 p.m. EDT release that would be followed by government data Wednesday morning. Analysts and traders anticipate U.S. commercial crude oil inventories declined by 700,000 barrels (bbl) for the week ended April 21 after plunging more than 4.5 million bbl in the prior week.

Part of the reason analysts expect a smaller crude draw last week is that the Department of Energy reported Monday that it transferred another 1.1 million bbl of crude oil from the nation's Strategic Petroleum Reserve to the commercial side of business last week.

Gasoline inventories are also seen to have declined by 700,000 bbl from the previous week, while stocks of distillates, which is mostly diesel fuel, are expected to have decreased by 400,000 bbl. Refinery use likely increased 0.3% from the previous week to 91.3% of capacity. Estimates range from a 0.5% decrease to a 1% increase.

At settlement, NYMEX June WTI futures fell $1.69 to $77.07 per bbl, while international crude benchmark ICE Brent futures for June delivery declined $1.96 to $80.77 per bbl. NYMEX May RBOB futures eroded to $2.5886 per gallon, down $0.0432, and May ULSD futures dropped back $0.0799 to $2.4511 per gallon.

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