DTN Oil

WASHINGTON (DTN) -- Following a two-day rally, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange slipped lower early Thursday as market participants turned cautious ahead of the release of weekly inventory data on U.S. crude and petroleum stockpiles joined with key readings on the labor market, with recent data providing mixed signals on the summer demand outlook in the world's largest economy.

The American Petroleum Institute reported late Wednesday stockpiles of gasoline and distillates unexpectedly increased during the final week of May, rising by a combined 4.095 million barrels (bbl) compared with expectations for a 2.8 million bbl draw. U.S. commercial crude oil inventories declined above consensus, down 5.36 million bbl in the week reviewed, according to the API, after stocks dropped 1.7 million bbl in the week prior. If confirmed by the U.S. Energy Information Administration, the draw would press stockpiles to about 3% below the five-year average.

EIA will release its inventory data at 11:00 a.m. ET, delayed by one day due to Monday's Memorial Day holiday.

On today's economic calendar, private employment report from the Automatic Data Processing is expected to show 650,000 new jobs were added last month despite reported labor shortages and upward pressure on wages. Weekly unemployment report due out 8:30 AM ET from the Labor Department is likely to show continued improvement in the jobs market, with 400,000 new unemployment claims submitted in the final week of May.

Despite labor shortages and supply bottlenecks, the U.S. economic recovery accelerated in recent weeks, according to the Federal Reserve Beige Book released Wednesday. All 12 Fed districts cited increased vaccination rates and relaxed social distancing measures as main factors behind faster growth rates fueled by a solid demand from consumers.

Faced with faster growth prospects, the Fed announced Wednesday that it plans to start selling its portfolio of corporate bonds and exchange-traded funds it bought during the pandemic. The move is said to be separate from the central bank's quantitative easing efforts, where the Fed has continued to purchase $120 billion in Treasuries and mortgage-backed securities each month. Markets expect the central bank to start discussing reducing the pace of those purchases later this summer or fall.

Friday's nonfarm payroll report from the Labor Department could prove pivotal for the direction of Fed monetary policy in coming months, with expectations that a faster pace of hiring would move the central bank closer to its target of raising interest rates.

On Wednesday, West Texas Intermediate and Brent crude settled at better than 2 1/2-year highs spurred, in part, by an abrupt pause in nuclear talks in Vienna, where multinational negotiations were expected to clear the way for lifting U.S. sanctions on Iranian oil exports and shipping industries. Participating countries plan to reconvene in Vienna on June 10, which leaves about a week to strike a deal before Iranian presidential elections on June 18, which analysts believe will usher a hardliner into the presidency.

Senior diplomats from Britain, France, and Germany, are among the countries that struck the 2015 Joint Comprehensive Plan of Action with Iran, were more cautious in their tone after leaving Vienna on Wednesday.

"We have continued to make progress and important parts of a future deal have now been fleshed out, but the most difficult decisions lie ahead. We have of course worked based on the principle of nothing is agreed to (until) all is agreed," the group of diplomats, known as the E3, said in a statement.

In Washington, U.S. State Department spokeswoman Jalina Porter told reporters, "The nuclear agreement is not going to be a quick and easy progress."

In early trade, July WTI futures traded little changed near $68.75 after trading as high as $69 bbl on Wednesday, and ICE August Brent crude futures slipped 8 cents to $71.26 bbl. July ULSD futures were down 0.53 cent to to $2.1018 gallon, with July RBOB futures fell 0.94 cent to $2.1847 gallon.

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