Oil Drifts as Markets Try to Figure Out Game, With U.S. Finally in a Recession

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By Barani Krishnan

AiVIF.com - It’s final: America is technically — quote unquote — in a recession. And oil and other risk assets, led by stocks on Wall Street, drifted or moved cautiously on the news, as the Biden administration sought to assure that the ceiling wasn’t collapsing yet on the U.S. economy.

“Coming off of last year's historic economic growth – and regaining all the private sector jobs lost during the pandemic crisis – it's no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation," Biden said in a statement that set the tone for the reaction of U.S. markets on Thursday after a reading on Q2 GDP.

U.S. Gross Domestic Product contracted by 0.9% in the second quarter of this year, the Commerce Department said in its first of three estimates for the quarter after a first-quarter GDP drop of 1.6%. This year's two weak quarters came after a 5.7% GDP growth for all of 2021. That was the fastest economic growth in four decades after the 3.5% contraction in 2020 due to the coronavirus pandemic.

New York-traded West Texas Intermediate, or WTI, crude for September delivery was down 14 cents, or 0.1%, to $97.12 per barrel by 12:45 PM ET (16:45 GMT). It reached a session high of $99.83, prior to the news on the GDP.

London-traded Brent crude for October delivery was up 20 cents, or 0.2%, to $​​101.87.

Crude prices had ticked higher the past two days, adding about 2% to their value, after three prior weeks of losses totaling about 13%.

Recession talk had gripped markets since mid-June as U.S. economic data began to show signs of weakening.

Sales of new homes, for instance, fell just over 8% in June from a month ago and were down double-digits from a year earlier. US consumer confidence, meanwhile, fell for a third month in a row in July.

On Thursday, the Labor Department said U.S. jobless claims hit their highest since January, calling into question the strength of the employment market, which Biden to Fed Chair Jerome Powell paid kudos to this week as the engine of economic growth.

U.S. oil data has been telling an equally mixed story.

U.S. crude oil inventories slumped by 4.52 million barrels last week, against a forecast drop of 1.5 million, the Energy Information Administration said in its Weekly Petroleum Status Report. Crude stocks fell 446,000 barrels the prior week, after an earlier two-week buildup of almost 11.5 million barrels.

But more important than the crude balance was the data on gasoline.

The EIA reported that gasoline stockpiles tumbled 3.3 million barrels during the week ended July 22 after climbing a combined 9.32 million for the weeks ended July 15th and July 8th. 

Industry analysts tracked by AiVIF.com had anticipated a drop of just around 1.0 million barrels of gasoline for last week.

The slide in inventories of gasoline — the main automobile fuel in the United States — came as pump prices for the fuel fell from a record high of $5.01 per gallon in mid-June to $4.30 now.

EIA data showed last week’s pump demand for gasoline at 9.25 million barrels, just a shade lower than the 9.33 million seen the same week a year ago. In the previous week, pump demand was at 8.5 million barrels, versus the year-ago number of 9.3 million.

Some analysts say this is proof that demand for U.S. gasoline wasn’t as price-proof or inelastic as oil bulls tried to make it out to be. Others say the upside in crude and fuel has some more way to go.

“It would appear the economic reality isn't being lost everywhere,” said Craig Erlam, referring to crude trading below Thursday’s session highs after the GDP data. “[But] Brent continues to hover above $100 so the tightness in the market continues to support it.”