DTN Oil

WASHINGTON (DTN) -- Shrugging off a strengthening U.S. dollar, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange pushed higher in market-on-close trade Tuesday, lifting West Texas Intermediate above $75 barrel (bbl) amid expectations for U.S. crude and gasoline inventories to show declines during the week ended July 9 and fuel demand to hold higher amid the peak summer driving season.

On Tuesday's session, NYMEX West Texas Intermediate August futures advanced $1.15 to settle at $75.25 bbl, and international Brent crude benchmark for September delivery rallied $1.33 for a $76.49 settlement. NYMEX August ULSD futures surged 3.46 cents to $2.1844 gallon and front-month RBOB futures rallied to the highest settlement since September 2014 at $2.3183 a gallon, adding more than 4 cents on the session.

Tuesday's higher settlements came despite a sharp rebound in the U.S. Dollar Index that finished a volatile session 0.55% higher against a basket of foreign currencies at 92.760. The greenback's renewed strength follows a higher-than-expected print for the June Consumer Price Index, prompting speculation that the U.S. Federal Reserve would scale back its accommodative monetary policy earlier than previously thought. The CPI leaped 0.9% last month, compared with market consensus for the reading to ease to 0.5%. This was the largest one-month change since June 2008 when the index rose 1%.

A surprise increase in last month's inflation suggests an acceleration in inflationary pressures across the U.S. economy as businesses struggle to balance a rush of demand against shortages of materials and labor. Every successive inflation print that shows rising prices will add further pressure on the Federal Reserve assumption that inflation is transitory and should fade over time as the reopening process is completed.

Separately, oil traders are awaiting the release of weekly inventory data from the American Petroleum Institute due out 4:30 p.m. EDT, followed by official statistics from the U.S. Energy Information Administration on Wednesday. Nationwide crude oil stockpiles are expected to decrease from the previous week by 4 million bbl, with consensus ranging from drop of 1.6 million bbl to 7.4 million bbl. If confirmed in EIA data, this would mark the seventh consecutive drawdown from nationwide crude oil inventories. Gasoline stockpiles are expected to fall by 1.8 million bbl from the previous week, while stocks of distillates are seen rising by 900,000 bbl. Refinery run rates likely rose by 0.4% to 92.6% of capacity.

Oil futures regained upward momentum Tuesday after the Paris-based International Energy Agency warned the physical oil market could quickly overtighten should OPEC+ producers fail to reach an agreement on raising production quotas next month. In its monthly Oil Market Report released Tuesday morning, IEA said oil inventories held by countries that are part of the Organization for Economic Cooperation and Development fell far below the pre-COVID 2015-2019 average last month, underpinned by improved demand fundaments and slow return of global oil production. Global oil demand is estimated to have surged 3.2 million barrels per day (bpd) at the start of the summer to 96.8 million bpd, with additional gains expected in the third and fourth quarters. The agency, however, acknowledged that rising COVID-19 infections in major economies, including the United States and the European Union, present a downside risk for the forecast.

On the supply side, the agency expects a gradual return of OPEC+ barrels to the market, calling on production from the 23-nation alliance to rise by 1.9 million bpd in the third quarter to 42.8 million bpd before reaching 44.1 million bpd during the final three months of the year.

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