WTI, Brent Ease From 2-1/2-Year Highs Ahead of Inflation Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Heading into early morning trade Friday, crude and refined products futures on the New York Mercantile Exchange and Intercontinental Exchange moved shallowly mixed, although all contacts are still on track to post week-on-week gains after Senate lawmakers reached a bipartisan agreement on a $1.2 trillion infrastructure package, expected to boost demand for the key commodities and refined fuels over the span of eight years.

With $529 billion in new spending and a $1.2 trillion commitment spread through 2029, the bill -- if passed by the House of Representatives -- will be one of the largest fiscal programs in U.S. history. President Joe Biden called the bipartisan breakthrough a "huge day" for his broader economic agenda, adding it signals to global investors that America can "function, deliver, and do significant things". Under the framework, the bipartisan package, led by Senators Kyrsten Sinema, D-Ariz., and Rob Portman, R-Ohio, would include $312 billion in new spending on roads, bridges, and other traditional infrastructure projects and $266 billion to other infrastructure, including water and broadband. On the back of massive infrastructure investment, demand for lumber, steel and distillate fuels is expected to get a major boost along with prices for the underlying commodities that already booked phenomenal gains in the first half of the year.

Nonetheless, massive capital injections into ailing infrastructure, coupled with the Federal Reserve pledge to keep interest rates near zero for at least the next two years, further stoked investors' fears over run-away inflation. Friday's release of the Personal Consumption Price Index, due out 8:30 a.m. ET by the U.S. Bureau of Economic Analysis, could show the fastest price increases in over three decades. Economists expect Core PCE Index, the Federal Reserve's preferred gauge of inflation, to rise to 3.4% year-on-year in May from 3.1% in April. On a monthly basis, the PCE Price Index and the Core PCE Price Index are expected to come at 0.3% and 0.6%, respectively. The fresh reading is also seen as yet another test for the Fed's timetable to lift interest rates from rock bottom and taper $120 billion a month bond purchases. Federal Reserve Chairman Jerome Powell said this week that he would not dismiss the possibility that inflation will stay higher for longer than expected. Moreover, the Summary of Economic Projections released this month revealed that inflation will likely run at 3.4% this year compared with 2.4% seen in March.

This week's economic data proved mostly supportive for equities and oil markets, with first-time unemployment claims falling modestly while durable goods orders climbed at the fastest pace since January. U.S. durable goods orders advanced 2.3% last month, led by an increase in new orders for transportation equipment, up 7.6% from April's revised levels, according to data published from the U.S. Census Bureau. A private survey showed U.S. factory activity climbed to a record high in June even as operators still struggle to secure raw material and qualified labor, prompting substantial price increases for both businesses and consumers. U.S. Flash manufacturing Purchasing Managers Index for June gained to 62.6 from last month's 61.5, indicating continued expansion for the domestic industry.

Near 7:30 a.m. ET, NYMEX August West Texas Intermediate futures slipped 19 cents to trade near $73.11 per barrel (bbl) and the international crude benchmark Brent contract for August delivery slipped 11 cents to $75.45 bbl. NYMEX July RBOB futures softened 0.34 cent to $2.2775 gallon and front-month ULSD futures traded modestly higher near $2.1640 gallon.

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

Liubov Georges