DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Friday's session lower, with all petroleum contracts registering steep weekly losses. The declines came amid a one-two punch of continued increases in interest rates by hawkish central banks in their fight against sticky inflation and a sharp slowdown in manufacturing activity in the United States and European Union among other major economies.

Friday's macroeconomic data out of the U.S. and EU revealed manufacturing activity across the two sides of the Atlantic fell into deeper recession this month. In Germany, the EU's largest economy, manufacturing PMI plummeted to a 37-month low at 41, with the broader economy losing considerable momentum at the end of the second quarter.

"In manufacturing, all signs point to a contraction in the second quarter, while a slowdown in growth is also evident in the services sector," commented Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, on the reading.

The slowdown doesn't bode well for distillate fuel demand that is mostly used in industrial production, agriculture, and long-haul trucking.

Domestically, the economy still holds to its post-pandemic momentum in the services sector, but manufacturing industries suffer from insufficient consumer demand and a high interest rate environment. Manufacturing PMI in the U.S. slid this month to 46.9, the lowest index since January, with a reading of 50 separating growth from contraction.

"The overall rate of expansion of business activity in the U.S. remained robust in June, consistent with GDP rising at a rate of 1.7% to put second-quarter growth in the region of 2%," commented Chris Williamson, chief business economist at S&P Global Market Intelligence.

Against this backdrop, central banks in the United Kingdom, Norway and Switzerland hiked interest rates by a larger-than-expected margin this week, citing insufficient progress in slowing a relentless rise in consumer prices.

"We took this decision [in raising interest rates] today because unfortunately, inflation is still way too high. Many people with mortgages and loans are now rightfully worried about what it means for them. But if we don't raise interest rates right now, higher inflation will stay with us for longer," said Bank of England Governor Andrew Bailey in a news conference Thursday following BOE's decision to lift rates by another 50-basis points.

Inflation in the United Kingdom appears to have infected the labor market and wage-setting to a greater extent than elsewhere, with average earnings rising at a faster pace over the past three months even as payrolls are falling. This economic phenomenon, sometimes called stagflation, led to a protracted recession and price volatility across Western economies in the 1970s.

At settlement, NYMEX August West Texas Intermediate futures declined to $69.16 per barrel (bbl), down $0.35, and international crude benchmark Brent for August delivery slipped $0.29 to $73.85 per bbl. NYMEX July ULSD futures pulled back $0.0584 to $2.4071 per gallon, and NYMEX July RBOB futures dropped $0.0329 to $2.5172 per gallon.

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