DTN Oil

WASHINGTON (DTN) -- With the U.S. dollar rebounding sharply against a basket of foreign currencies, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session shallowly mixed after upbeat U.S. economic data boosted optimism for a stronger-than-expected post-pandemic recovery and quicker normalization of Federal Reserve monetary policy.

The combination of bullish economic data and rising coronavirus cases in Asia-Pacific countries lifted the greenback to the highest trade in three weeks at 90.555 on Thursday. The U.S. dollar rebound, meanwhile, negatively affects dollar-denominated commodities such as crude oil, gold, and lumber.

Business activity in the service sector of the U.S. economy expanded at a faster rate than expected in May, with the Institute for Supply Management services index reaching an all-time high 64% as capacity restrictions were lifted and consumer demand held strong. However, labor shortages during the month continued to hamper the sector's growth potential, which could weigh on the demand outlook and inflation expectations in coming months.

Initial unemployment claims did fall to a new pandemic low 385,000 last week, which is also the lowest number of first-time filings since March 14, 2020, when it was 256,000. The supportive data for unemployment claims are in sync with a better-than-expected report on private employment from Automatic Data Processing, LLC, with the payroll processor finding the U.S. economy added 978,000 new jobs in May compared with expectations for job growth of 650,000.

This week's data could prove pivotal for the direction of Federal Reserve monetary policy in coming months, as the economy's growth is projected to accelerate further along with inflation fueled by the rock-bottom interest rates and government spending.

On Wednesday, the Federal Reserve announced plans to start selling its portfolio of corporate bonds and exchange-traded funds it bought during the pandemic. The move is separate from the central bank's quantitative easing efforts, where the Fed has continued to purchase $120 billion in Treasuries and mortgage-backed securities each month. Markets expect the central bank to start discussing reducing the pace of those purchases later this summer or fall.

Wednesday's inventory report from Energy Information Administration was slightly bearish, showing total petroleum product supplies increased 1.9 million barrels (bbl) from the previous week as demand for gasoline and distillates softened. Gasoline stockpiles unexpectedly jumped 1.5 million bbl from the previous week, while remaining about 3% below the five-year average at 235 million bbl. Gasoline supplied to the U.S. market, a measure for demand, retreated from a 14-month high 9.479 million bbl but still held above 9 million on the week. Demand for distillate fuels did not fare any better, sliding 648,000 barrels per day (bpd) or 14% from the previous week to below 3.813 million bpd. Bullish parts of the report were a larger-than-expected 5.1 million bbl drawdown from commercial crude oil stockpiles and higher refinery run rates of 88.7%. In the reviewed week, domestic refiners processed as much crude as they did back mid-February 2020.

On the session, July West Texas Intermediate futures settled little changed at $68.81 and ICE August Brent crude futures ended at $71.31 bbl. July ULSD futures were down 0.54 cents to $2.1017 gallon and July RBOB futures gained 0.77 cents to $2.2018 gallon.

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