Oil Futures Soften Ahead of Data on Inflation, Vaccinations

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange eased in early trade Friday, although all contracts are still on track for modest gains this week spurred by risk-on sentiment in financial markets and hope for a stepped up vaccination campaign in the Eurozone during the second quarter that is seen boosting economic and demand growth in the 19-nation bloc.

Following volatile trading at the start of the week, oil futures have calmed in recent sessions as markets shifted focus to the progress in Eurozone vaccinations and upbeat economic forecasts in the United States and elsewhere. Overnight data out of China showed factory gate prices surged the most in three years in March, suggesting producers are increasingly passing on rising costs to consumers. National Bureau of Statics found China's official producer price index rose to 4.4% in March compared with 1.7% increase in February.

Inflation concerns have taken center stage in recent weeks as the pandemic recedes, and major economies find ways to open after more than a year contending with restrictions. In the Eurozone, where renewed lockdown measures were thought to have dampened economic activity, manufacturing and service sectors returned to growth last month.

Traders now await data on U.S. inflation, with the Bureau of Labor Statistics to release March's PPI reading at 8:30 a.m. EDT. Market consensus calls for no change in producer costs following a 0.5% increase during the previous month. A gain in PPI could prompt selling should the market suspect inflation is growing faster than expected.

On Thursday, Federal Reserve Chairman Jerome Powell said the central bank has tools to deal with inflation if prices move "persistently and materially above levels we're comfortable with." Additionally, minutes from Federal Open Market Committee's March meeting released Wednesday revealed consensus among central bank officials that the economy has yet to meet requirements that would warrant scaling back its massive bond buying program enacted last year.

Ahead of the data, U.S. Dollar Index and Treasury yields reversed off two-week lows, with greenback trading 0.2% higher against a basket of global currencies at 92.255. The index advanced to an almost five-month high of 93.439 at the end of March as the U.S. economic recovery outpaces most other global peers.

U.S. crude benchmark traded flat near $59.60 barrel (bbl) and the June Brent contract on ICE dipped 10 cents to $63.11 bbl. NYMEX May ULSD futures eased 0.58 cents to $1.8040 gallon and NYMEX May RBOB futures were little changed near $1.9596 gallon.

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

Liubov Georges