DTN Oil

WASHINGTON (DTN) -- Following an explosive three-session rally, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded the Intercontinental Exchange moved shallowly mixed early Friday, weighed down by a strengthening U.S. Dollar Index ahead of the release of U.S. Purchasing Manager's Index for July. Expectations are for business activity across services and industrial sectors to have accelerated further into midsummer despite an uneven recovery in the labor market and rising inflation.

Near 7:45 a.m. EDT, NYMEX September West Texas Intermediate futures traded little changed near $71.86, and the international crude benchmark Brent contract for September delivery slipped $0.12 to $73.67 barrel (bbl). NYMEX September RBOB contract declined 0.72 cents to $2.2660 gallon and ULSD August contract traded flat at $2.1334 gallon.

Overnight data out Eurozone showed business activity in the region grew at the fastest rate in 21 years, with the service industry enjoying a summer growth spurt by the loosening of COVID-19 restrictions. The Eurozone Composite PMI rose from a 15-year high of 59.5 in June to 60.6 in July, its highest since July 2000, according to the preliminary flash reading. The impressive rise in service sector activity was tempered, however, by a slowing in manufacturing output growth, linked in many cases to worsening supply lines. Notably, in Germany manufacturing output was constrained by material shortages.

Supplier delivery times -- a key barometer of supply chain delays -- continued to lengthen at one of the sharpest rates ever recorded by the survey, playing a key role in driving input costs higher.

Business confidence for the year ahead took a hit from rising concerns over the Delta variant of coronavirus, pushing expectations sentiment to a five-month low.

"Not only have rising case numbers led to a slide in business optimism to the lowest since February, further COVID-19 waves around the world could lead to further global supply chain delays and hence ever higher prices," commented Chris Williamson, chief businesses economists at IHS Markit.

Reflecting expectations for higher inflation growth, the European Central Bank upgraded its inflation target from "below but close to 2% to a symmetric 2% target over the medium term," while keeping its deposit facility rate at rock-bottom -0.5% and benchmark refinancing rate is 0%.

"Patience needed to avoid premature tightening," warned ECB President Christine Lagarde during a news conference Thursday.

Domestically, investors will keep a close eye on next week's Federal Reserve rate-setting meeting, with a high degree of uncertainty surrounding Chairman Jerome Powell's move to begin signaling an end to bond purchases when growth and employment prospects remain sensitive to the rise in Delta-variant infections. U.S. Labor Department reported jobless claims last week unexpectedly rose to the highest level since mid-May at 412,000. Previous week's figures for both initial and continued claims were also revised higher.

An uneven recovery in the labor market comes despite a record number of job openings and the end of supplemental unemployment insurance benefits in the number of Republican-led states.

Lastly, the recent surge in COVID-19 infections shows no signs of abating in some states where vaccination rates are particularly low, including Florida, Louisiana and Missouri. Nationally, the United States is reporting a seven-day case rate of about 79 per 100,000, according to data from the Centers for Disease Control and Prevention, the highest ratio since mid-May.

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