DTN Oil

CRANBURY, N.J. (DTN) -- October RBOB and ULSD futures on the New York Mercantile Exchange reversed lower on Friday on concern over economic growth. November West Texas Intermediate settled higher despite a strengthening U.S. dollar on tightening global supply availability, and November Brent on the Intercontinental Exchange settled flat.

ULSD futures swung from a $3.4294 intraday high early session bolstered by Russia's announcement on Thursday that it would suspend diesel and gasoline exports amid strong domestic demand to trade at an intraday low of $3.3045 gallon in afternoon trading after the United Auto Workers expanded a strike at midday, settling the session at $3.3062 per gallon, down $0.0618. October RBOB futures settled down $0.0581 at $2.5618 per gallon.

A targeted work stoppage at General Motors, Ford, and Stellantis' most profitable plants that began on Sept. 14 was expanded to 38 plants owned by General Motors and Stellantis on Friday, with UAW President Shawn Fain having previously stated the strike action would expand if significant progress in negotiations wasn't achieved. The expanded work stoppage did not include Ford, with UAW indicating progress in discussions with the automaker.

The expanded strike, should it continue, will be detrimental to the U.S. economy, with the Anderson Economic Group previously indicating a 10-day strike against Detroit's Big Three automakers by the 146,000-member UAW could cause a $5.6 billion loss in U.S. gross domestic product and push Michigan's economy into recession.

The widening work stoppage comes as the federal government is barreling toward a shutdown, with repeated efforts by the House of Representatives to pass a stopgap budget funding the government past Sept. 30 failing. The White House budget office told federal agencies on Friday to be ready to alert their staff of the potential for a shutdown, with funding for the federal government not approved by Congress beginning on Oct. 1.

Although the Federal Open Market Committee sees a path to a soft landing for the U.S. economy when they conclude their current monetary policy tightening, some market observers disagree, believing the potential for another rate hike later this year joined by persistently high inflation could push the economy into recession. FOMC on Wednesday held the federal funds rate unchanged in a 5.25% by 5.5% target range, but most of the voting FOMC officials expect to lift the key bank borrowing rate by 25-basis points in the fourth quarter. Additionally, the Fed's dot-plot shows central bank officials expect the federal funds rate to hold above 5% in 2024, projecting two 25-basis point cuts next year, down from four.

The "higher for longer" refrain, now appearing in Fed official's rate projections, contrasted with the accommodative monetary policy that the Bank of Japan voted to continue Friday morning. On Thursday, the Bank of England held its main policy rate unchanged against expectations for a 25-basis point increase, with the combination of these policy decisions strengthening the U.S. dollar. The U.S. dollar index settled 0.21% higher at 105.260 in index trading against a basket of foreign currencies on Friday, trimming an advance to a 105.465 better-than-six-month high.

November West Texas Intermediate futures settled above $90 per barrel (bbl) at $90.03, up $0.40, despite the stronger U.S. dollar, although did trim an advance to $91.33 per bbl spurred by a tightening global supply balance. ICE November Brent futures settled down $0.03 at $93.27 per bbl, fading from a $94.64 intraday high.

The International Energy Agency projects Saudi Arabia's 1-million-barrel-per-day (bpd) production cut and Russia's pledge to withhold 300,000 bpd in oil exports from the world market through the end of the year will create a 1.2-million-bpd supply shortfall in the fourth quarter. WTI futures also got a price boost on the session after Baker Hughes reported an eight-rig decline in the number of oil rigs deployed in the United States that pressed the U.S. oil rig count to a 507 20-month low on Friday.

Goldman Sachs Research this week revised its forecast for oil prices, expecting Brent crude to reach $100 bbl in the next 12 months, up from a previous forecast of $93 per bbl.

"OPEC will probably be able to keep Brent prices in a range of $80-$105 next year," said Goldman Sachs Head of Oil Research Daan Struyven.

The research team also cited demand growth globally next year led by Asia.

"There will likely be more global demand for oil in 2024 led by Asia, as the slowdown in China's economy shows signs of "bottoming out." India and the Middle East are also expected to have large increases in demand," said Goldman Sachs Research.

Brian L. Milne can be reached at brian.milne@dtn.com