DTN Oil

WASHINGTON (DTN) -- While the ULSD contract was an outlier, advancing for the 11th consecutive session Tuesday, West Texas Intermediate and RBOB futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange posted modest losses. The crude contracts were pressured by a stronger U.S. dollar and weak industrial data for the Eurozone, where manufacturing activity deteriorated to the lowest level since spring 2020 amid dull consumer demand.

The greenback's renewed strength follows a slew of dismal Eurozone manufacturing data, where all signs point to a protracted recession in the second half of the year. This has pressured the Euro against its main rival, the U.S. dollar, on the first trading session of August, with the greenback rallying 0.45% against a basket of foreign currencies. The headline manufacturing index for the German economy slid last month to the lowest level since May 2020, reflecting weak demand conditions for a broad category of consumer goods, showed data released by S&P Global overnight.

German and European manufacturers broadly reported challenges in securing new work across many key export markets in Asia and the United States. This was reflected in a sharp and accelerated reduction in international sales.

"These are ugly figures. The fall in demand for German manufactured goods, as measured by the survey's new orders index, is one of the most pronounced over roughly the last 30 years," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "The risks for the German economy as a whole running into trouble during the second half of the year have clearly increased."

Domestically, the manufacturing sector did not fare much better, with the headline Purchasing Managers Index released Tuesday morning by the Institute of Supply Management revealing business conditions across all but one large industry remained in contraction.

"Current U.S. market conditions of inflationary and recessionary tactics affecting overall business. Customers are reducing or not placing orders as forecast, putting internal focus on reducing financial liabilities and overhead costs," said a representative from the computer and electronic products sector surveyed by ISM.

"Sales in our industry are extremely slow entering into the second half of the year, and no upturn is expected until at least the fourth quarter," assessed a representative from the chemical products industry.

Also on Tuesday, oil traders positioned ahead of the weekly inventory report from the American Petroleum Institute scheduled for release at 4:30 p.m. EDT, followed by official data from the U.S. Energy Information Administration Wednesday morning.

The consensus of analysts and traders surveyed by the Wall Street Journal calls for U.S. commercial crude oil inventories to have declined by 1.3 million barrels (bbl) during the week ended July 28. If realized, that would mark the third consecutive weekly drawdown from commercial stockpiles. Currently, commercial crude oil inventories sit around 2% above the five-year average.

Gasoline inventories are also projected to have decreased by 1.3 million bbl from the previous week. Nationwide, gasoline inventories stand around 7% below the five-year average at 217.6 million bbl after a sustained destocking pattern for four straight weeks.

Stocks of distillates, which are mostly diesel fuel, are projected to have declined by a modest 100,000 bbl from the previous week, with a wide range of estimates from a decrease of 3 million bbl to an increase of 1.4 million bbl. U.S. distillate inventories currently sit almost 14% below the five-year average.

Refinery use likely slipped by 0.1% from the previous week to 93.3% of installed capacity, which would mark the lowest run rate since early June.

On the first trading day of August, WTI September futures on NYMEX slipped $0.43 per bbl from a 15-month high on Monday to settle at $81.37 per bbl, while the new front-month October Brent contract declined $0.52 for a $84.91-per-bbl settlement. NYMEX September RBOB futures moved $0.0225 lower to $2.8730 per gallon, continuing a retreat from the July 28 $2.9936 nine-month high on the spot continuous chart traded by the now-expired August contract.

Bucking the trend, the September ULSD contract on NYMEX advanced to a fresh six-month high $3.0725 on the spot continuous chart before settling the session at $3.0234 per gallon, up $0.0379.

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