DTN Oil

WASHINGTON (DTN) -- With the S&P 500 hitting record highs and Treasury yields holding steady, oil futures nearest delivery on the New York Mercantile Exchange along with Brent crude traded on the Intercontinental Exchange settled Thursday's session modestly higher. The gains came as traders assess the impact of hotter-than-expected consumer prices on the economy's post-pandemic recovery and direction of Federal Reserve monetary policy.

Following a 0.8% increase in April, the U.S. consumer price index once again missed market's expectations with a 0.6% gain last month, said Bureau of Labor Statistic this morning, underlining rising inflation in the world's largest economy. This marked the fastest price increase for the basket of consumer goods, including food, energy and groceries, since at least 2009. Economists are pointing to a surge in costs for used cars as a factor skewing the inflation reading. Used car and truck prices jumped more than 7% last month, accounting for one-third of the total increase and likely reflects a temporary phenomenon related to the pandemic and material shortages.

The Federal Reserve has been pounding a message that the current rise in inflation is transitory, propelled by broader reopenings and a surge in pent-up demand rather than a symptom of an overheating economy. The U.S. central bank forecasts rising prices will eventually cool off in the second half of the year and into 2022.

The investment community has several concerns, including worry that inflation could rip higher before the central bank begins tightening monetary policy, while that tightening has the potential of slowing growth in equity values. Investors are closely watching comments from Fed officials on when discussions on tapering the $120 billion monthly purchases of treasuries and mortgage-backed securities by the central bank will begin, while the federal funds rate is near zero. The Federal Open Market Committee meets next on June 15-16.

Macroeconomic data released Thursday also included a fresh reading on unemployment claims, which fell to a fresh pandemic low of 376,000 in the week ended June 5, about as expected by economists. Jobless claims are also closely watched by investors, as the Fed has said it wants to see significant progress in the labor market recovery before it considers adjusting its monetary policy.

Separately, Organization of the Petroleum Exporting Countries released its Monthly Oil Market Report Thursday morning, leaving its 2021 global demand projections unchanged at 96.6 million barrels per day (bpd), for a 6 million-bpd annualized growth rate. Rising consumption of transportation fuels, like gasoline and jet fuel, are expected to boost global oil demand to 99 million bpd in the second half of 2021. Demand in the fourth quarter is expected to reach 99.82 million bpd, just 150,000 bpd below 2019's pre-pandemic average.

On the supply side, the cartel adjusted its expectations higher for production growth from its non-OPEC counterparts, upping its forecast by 100,000 bpd to 800,000 bpd. OPEC's supply rose 390,000 bpd last month to 25.463 million bpd, with 345,000 bpd of that increase coming from Saudi Arabia. Saudi Arabia said it would gradually return the additional barrels it unilaterally cut in June and July, with the kingdom's production quota under the OPEC+ deal at 9.347 million bpd in June and 9.495 million bpd in July, 1.505 million bpd below the 11 million bpd referenced output rate.

Iranian oil supply rose again in May, climbing 42,000 bpd to just under 2.5 million bpd, according to secondary sources cited by OPEC. Analysts expect Iran to add as much as 1.5 million bpd to global markets if talks between Tehran and world powers successfully revive the 2015 Joint Comprehensive Plan of Action, which would include waiving U.S. sanctions on the country's oil exports.

On the session, NYMEX July West Texas Intermediate futures gained 0.33 cent to $70.29 per barrel (bbl), and the international crude benchmark Brent contract advanced 0.30 cent to $72.52 per bbl. NYMEX July ULSD futures gained 1.39 cents to $2.1434 gallon, and the NYMEX July RBOB contact settled up 0.97 cent to $2.2122 per gallon.

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