Oil Futures Rally as Inflation Buzz Intensifies, US Dollar Softens

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent crude contract on the Intercontinental Exchange rallied in afternoon trade Friday, sending the U.S. crude benchmark above $65 per barrel (bbl). The gains came on the back of an eroding U.S. dollar as traders positioned for higher inflation and weaker-than-expected macroeconomic data in the United States.

U.S. retail sales for April were unchanged from the previous month at a collective $619.1 billion, according to the data from the Commerce Department, missing expectations for a 1% gain. The weaker-than-expected reading, however, follows a 10.7% surge in March, fueled by the stimulus checks and pent-up demand in the wake of the lifting of government restrictions on businesses. Some analysts attribute the flat retail sales reading to a stabilizing economy and a more normal operating environment for services.

Sales were up 2.9% at auto and parts dealers, where shortages in available cars have driven up prices, and 3% at restaurants and bars, a positive sign for the hard-hit industry as the U.S. economy more fully opens.

On Thursday, the Centers for Disease Control and Prevention lifted its guidance on masking for the fully vaccinated, saying those who have received all their shots can now safely do most indoor and outdoor activities without social distancing or wearing masks.

The move should further boost economic activity and faster return to work and entertainment venues.

With an expected increase in social and business activity also comes the prospect for a faster increase in inflation, with recent data showing consumer price increases are running at their fastest pace since 2008 and factory-gate inflation hit its highest level since 2010. The Department of Labor reported the consumer price index jumped 0.8% in April compared with a consensus for a 0.2% increase, lifting year-on-year headline inflation to 4.2% -- the largest 12-month increase since September 2008.

Fanned by inflation fears, U.S. consumer sentiment unexpectedly slumped in May to 82.8 versus estimates for a gain to 90.1. Expected year-ahead inflation rate and the long-term inflation rate was the highest in over a decade, said Richard Curtin, the survey's chief economist.

"Rising inflation also meant that real income expectations were the weakest in five years," Curtin said. The average of net price mentions for buying conditions for homes, vehicles, and household durables were more negative than any time since the end of the last inflationary era in 1980, he said.

Inflationary pressures have weighed on the U.S. dollar this week, with the greenback eroding 0.4% against the basket of foreign currencies to finish the week at 90.320.

NYMEX June West Texas Intermediate futures advanced $1.55 to settle at $65.37 per bbl and Brent July contract rallied $1.66 to $68.71 per bbl. NYMEX June RBOB futures advanced 3.13 cents to $2.1266 gallon, while June ULSD futures gained 3.53 cents to $2.0362 gallon.

Separately, Colonial Pipeline began making fuel deliveries along its 5,500-mile pipeline network Thursday following a five-day closure, which prompted widespread panic-buying from Washington, D.C., to Kentucky. Reports suggest more than 15,000 gas stations ran out of gasoline. On Thursday, GasBuddy data showed 73% of gas stations in Washington, D.C., were out of gas, and 48% in Georgia, while the 68.3% of stations with no fuel in the Atlanta metro area was an improvement from the 73.4% at the peak. In North Carolina, 68% of gas stations had no fuel, 52% were gasless in South Carolina and Virginia, while in Maryland, Tennessee, and Florida, the percentage of stations without gasoline were in the low 30% range.

President Joe Biden said on Thursday that it will likely take until the weekend to begin seeing an easing in gasoline shortages that have sprung up across the U.S. Southeast, helping to drive the retail price of gasoline above $3 gallon this week, the first time the U.S. average has topped the psychological benchmark since crude was trading at $100 per bbl seven years ago.

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

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

Liubov Georges