DTN Oil

WASHINGTON (DTN) -- Crude oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange erased early morning losses to settle Friday's session modestly higher. The contracts booked their first weekly losses in nearly two months amid pressure from concerns over a derailed economic recovery in China and the potential for tighter monetary policy in the United States after several Federal Reserve officials signaled they are biased toward one more rate hike this year.

At settlement, West Texas Intermediate September futures on NYMEX advanced $0.86 to $81.25 per barrel (bbl) after plunging to a $79.59-per-bbl intra-session low, and international crude benchmark Brent for October delivery finished at $84.80 per bbl, up $0.68 per bbl on the session. Both crude benchmarks posted their first weekly losses since late June.

In the refined fuels, NYMEX ULSD September futures rallied $0.0659 to settle at $3.1597 per gallon, while nearby-month RBOB contract finished the session little changed at $2.8232 per gallon.

The oil complex has been caught this week between two narratives as signs of tightness in the physical market run against demand fundamentals in the world's second-largest economy -- China. Macroeconomic data released this week showed another month of derailed growth for the Chinese economy, with consumer spending, factory production and fixed investment all having slowed further in July, according to data released from the National Bureau of Statistics. Financial markets have been further roiled by the news that China's troubled Evergrande Group filed for Chapter 15 bankruptcy days after another real-estate giant, Country Garden, missed payments on its corporate bonds, prompting rare protests from the investors. China's central bank attempted to calm the markets by slashing its key interest rate to the lowest since the early days of the pandemic in 2020, but investors remained skeptical that these measures would be enough to spur consumer and business confidence.

Oil traders closely monitor the developments around China's property crisis and potential signs of a spillover into the broader economy with Beijing being one of the largest buyers of crude oil in the physical market. OPEC in its Monthly Oil Market Report estimated China's crude imports fell to a six-month low 10.3 million barrels per day (bpd) in July from a near-record-high 12.7 million bpd seen in the prior month. Consistently poor macroeconomic data out of China is becoming an increasingly bearish headwind for the oil market that has so far been focused on supply-side constraints from the OPEC+ coalition.

Domestically, investors will shift focus to the next week's Economic Symposium in Jackson Hole, Wyoming, that will feature the headline speech from the Federal Reserve Chairman Jerome Powell. The theme of this year's event is "Structural Shifts in the Global Economy." While it's unlikely Chair Powell will offer any concrete guidance about near-term monetary policy, investors will be watching closely for hints of whether the July Fed rate hike was the last one of the current cycle. Minutes released from the July 25-26 meeting by the Federal Open Market Committee revealed most participants still saw a significant upside risk to the current inflationary cycle amid a tight labor market and resilient consumer spending. At that meeting, FOMC raised the benchmark borrowing rate for the 11th time in 17 months to a 5.25% by 5.5% range. Several Federal Reserve officials voiced their support for additional rate hikes since that decision, with Neel Kashkari, president of Minneapolis Federal Reserve, saying this week he is not ready to end the rate-hiking cycle at this point. "Participants stressed that inflation remained unacceptably high, and that further evidence would be required for them to be confident that inflation was clearly on a path toward the committee's 2% objective," cite minutes from the meeting, further noting that "consumer spending had exhibited considerable resilience, underpinned by, in aggregate, strong household balance sheets, robust job and income gains, a low unemployment rate, and rising consumer confidence."

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