WASHINGTON (DTN) -- In early morning trade Friday, crude and refined products futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange ticked higher, sending the front-month West Texas Intermediate contact above $69 per barrel (bbl) as investors await the release of May's employment report for additional clues on the labor market's ongoing recovery and inflationary pressures in the world's largest economy.
Near 7:30 a.m. ET, NYMEX July WTI futures gained 20 cents to trade just above $69 bbl and on track for 4% weekly advance, while ICE August Brent crude futures traded little changed near $71.36 bbl. NYMEX July ULSD futures traded modestly higher near $2.1019 gallon, with July RBOB futures softer at $2.1992 gallon.
The dollar index gained extra ground, trading near a three-week high 90.520, in response to rising speculation of further improvement in the U.S. labor market, which in turn could trigger chatter over higher inflation in the coming months.
The U.S. economy likely added 650,000 new jobs last month, according to economists' expectations, more than double the disappointing 266,000 in April as vaccinations accelerated, and more states moved to limit unemployment benefits. Data from payroll provider Automatic Data Processing, LLC showed private employers added a much larger-than-expected 978,000 new jobs last month while claims for first-time unemployment benefits fell to a new post-pandemic low of 385,000 in the final week of May.
Meanwhile, business activity in manufacturing and services sectors expanded at a faster rate than expected in May, with Institute for Supply Management services index reaching an all-time high 64% fueled by pent-up demand and easing capacity restrictions. However, labor shortages during the month continued to hamper the sector's growth potential, which could weigh on the demand outlook and inflation expectations in coming months.
This week's data could prove pivotal for the direction of Federal Reserve monetary policy in coming months, as the economy's growth is projected to accelerate further along with inflation fueled by the rock-bottom interest rates and government spending.
On Wednesday, the Federal Reserve announced plans to start selling its portfolio of corporate bonds and exchange-traded funds bought during the pandemic. The move is 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 gentle gains also follow a slightly bearish inventory report from Energy Information Administration, which showed total petroleum product supplies increased 1.9 million bbl from the previous week as demand for gasoline and distillates softened. Gasoline supplied to the U.S. market, a measure for demand, retreated from a 14-month high 9.479 million bbl but still held above 9 million barrels per day (bpd) on the week. Demand for distillate fuels slid 648,000 bpd or 14% from the previous week to 3.813 million bpd. Bullish parts of the report were larger-than-expected 5.1 million bbl drawdown from commercial crude oil stockpiles and higher refinery run rates of 88.7%. In the reviewed week, domestic refiners processed as much crude as they did back mid-February 2020.
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