DTN Oil

WASHINGTON (DTN) -- With global equities trading near all-time highs, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange again advanced early Wednesday, with both crude benchmarks testing three-year highs ahead of key readings for the U.S. labor market due out later this week that could chart the pace of the economy's post-pandemic recovery and add to inflation pressures.

Friday's employment report from the U.S. Labor Department will provide the first indication of whether the hiring slowdown seen in April was a one-month phenomenon, as some economists suspect, or a growing challenge for policymakers. April's jobs report badly missed the mark with a reported 266,000 new positions added despite U.S. job openings that reached an all-time high that month, underscoring acute shortages of available labor. Economists call on the U.S. economy to have added 645,000 new jobs in May, with a wide range in expectations from 400,000 to 950,000.

If new hiring bounced back strongly in May, that would move the U.S. Federal Reserve closer to its mandate in supporting employment and allow the central bank to consider scaling back its massive bond purchases that have propped up the economy and the markets for over a year now. Fed Chairman Jerome Powell has repeatedly said the labor market needs to make "substantial further progress" before the central bank begins scaling back the $120 billion in monthly purchases of Treasury and mortgage-backed bonds.

"If my expectations about economic growth, employment, and inflation over the coming months are borne out...it will become important for the (Fed) to begin discussing our plans to adjust the pace of asset purchases at coming meetings," said Randal Quarles, Fed vice chair for supervision, earlier this month.

Recent economic data, however, have complicated matters for the central bank. Bureau of Labor Statistics reported consumer prices rose a staggering 4.2% in April -- the fastest pace since 2008. Meanwhile, economic activity in U.S. manufacturing and service sectors continued to expand at an impressive pace last month, with the Institute of Supply Management's Manufacturing Index rising to 61.2 from 60.7 in April.

On Wednesday, investors will get a first glimpse at the dynamics of the U.S. labor market, with ADP private farm payroll report due out at 8:15 a.m. ET, followed by Thursday's unemployment claims for the final week of May.

Wednesday's gains also follow the decision from the Organization of the Petroleum Exporting Countries and Russia-led allies to keep production quotas unchanged for June and July, signaling global demand for crude oil is growing at a steady pace. OPEC+ reconfirmed plans to bring back 350,000 barrels per day (bpd) this month and another 441,000 bpd in July following a 500,000-bpd production hike in May. Saudi Arabia is also gradually bringing back 1 million bpd in output that the kingdom unilaterally cut earlier this year. Saudi Energy Minister Prince Abdulaziz bin Salman said recent market developments proved that the decision to gradually increase production, originally made in April and reconfirmed Tuesday, was "the right one."

Analysts speculated how OPEC+ would account for increased crude exports from Iran should U.S. sanctions be waived by Washington as the Biden administration seeks to restore the Joint Comprehensive Plan of Action the Trump administration withdrew from in 2018. Saudi oil minter Bin Salman said that the prospect of more Iranian oil coming to market was not discussed at this month's meeting.

In early trading, July West Texas Intermediate futures surged to a better-than 31-month spot high $68.48 per barrel (bbl) and ICE August Brent crude futures traded just above $71 bbl. July ULSD futures advanced 1.94 cents to $2.0906 gallon, with July RBOB futures moving up 2.17 cents to $2.1921 gallon.

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