DTN Oil

WASHINGTON, D.C. (DTN) -- Following three sessions of losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved higher in early trade Friday after economic data out of the eurozone showed business activity across the 19-member bloc expanded at the fastest pace in three years amid easing quarantine restrictions and a surge in pent-up demand.

New order inflows surged to an extent not seen in almost 15 years across European economies, while business optimism continued to break to new highs and price gauges rose further, showed a private survey on eurozone's business activity. At 57, flash Eurozone PMI Composite reached a 39-month high in May versus an expected 52.6 reading and an increase of 5.3 points from the previous month's reading. The gains this month came on the back of broader reopenings, lifting of coronavirus restrictions, and an accelerated pace of vaccinations across several European economies.

The data, however, also showed the growing shortfall of current output relative to demand, with the backlog of uncompleted orders across services consequently rising to the highest level since the survey began in November 2002. With demand continuing to run ahead of supply for many goods and services, inflationary pressures again increased in May. Germany's producer prices index for April saw the largest year-on-year increase since August 2011 at 5.2%, with prices for intermediate goods surging by 8.2%.

In the United States, similar factors combined to push the consumer price index up 0.8% in April and 4.2% over the past 12 months, the fastest annual rate since 2008, the Bureau of Labor Statistics reported earlier this month. When stripping out the more volatile prices for food and energy, the index registered the biggest monthly increase since 1982.

Inflation had been widely expected to rise in the United States, but the sharper-than-expected increase in consumer prices last month elevated concerns that inflation could derail the recovery from the coronavirus recession.

White House and Federal Reserve officials said with the United States still down roughly nine million jobs from the onset of the pandemic, the economy is in no danger of overheating. But cracks in the narrative began to reveal themselves recently, with Wednesday's release of minutes for the Federal Open Market Committee's April meeting showing some central bank officials were concerned that inflation could run ahead of monetary policy fixes by the Fed. Discussions on tapering $120 billion in Fed purchases of Treasuries and mortgage-backed securities were also noted.

Despite hints the Fed has begun the debate on tapering its quantitative easing monetary policy, the U.S. Dollar Index continued to weaken, pressured by the bullish eurozone data, and retreating U.S. Treasury bond yields.

In early trade, U.S. Dollar Index traded at 89.630 4-1/2 month low, continuing its downtrend in the second quarter, while offering some support for the new front-month July West Texas Intermediate contact which moved more than $1 higher to trade near $63.10 per barrel (bbl). International crude benchmark Brent contract for July delivery rallied $1 to trade near $66.20 bbl. NYMEX June RBOB futures advanced 2.04 cents to $2.0668 gallon, reversing off a better than three-week spot low settlement at $2.0472 gallon, while June ULSD futures gained 1.34 cents to near $1.9778 gallon.

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