DTN Oil

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended lower in mid-morning trade Thursday, with nearby-month West Texas Intermediate falling below $72 barrel (bbl) amid growing concerns over softening U.S. fuel demand after government data reported gasoline consumption fell sharply during the period covering the July Fourth holiday weekend, as well as on chatter that higher inflation would prompt the U.S. Federal Reserve to reduce its level of support for the economy's post-pandemic recovery.

Concerns over how long higher inflation will linger and its impact on economic growth came front and center during Wednesday's congressional testimony by Federal Reserve Chairman Jerome Powell. The Fed chief told lawmakers the central bank is not ready to reduce monthly asset purchases and the labor market "is still a ways off" from the Fed's goals. Thursday morning the Bureau of Labor Statistics reported the number of Americans seeking first-time unemployment benefits is still well above pre-pandemic levels at 360,000, suggesting a rather slow progress in the labor market's recovery. Despite uneven growth, Powell also said the central bank would not hesitate to raise interest rates to keep inflation under control, while repeatedly emphasizing he still expects price pressures to ease later this year. Powell is scheduled to testify before the Senate Banking Committee for the second day Thursday.

The U.S. Consumer Price Index, a measure for inflation, came well above expectations at a 0.9% increase in June, following a 0.7% gain in the prior month and a 0.9% hike in April. The trajectory of price increases has put further pressure on the Federal Reserve narrative that inflation is transitory and would not stick for long.

In its monthly oil market report released Thursday morning, the Organization of the Petroleum Exporting Counties said rapidly rising inflation could lead to higher interest rates across developing and emerging markets, undermining economic and demand recovery this year. OPEC left its 2021 demand projections unchanged at 6 million barrels per day (bpd) annualized growth for an average of 96.6 million bpd. Next year, global oil demand is expected to rise by 3.3 million bpd to average 99.9 million bpd. That echoes forecasts made in June by the International Energy Agency, which expects demand to return to pre-pandemic highs by the end of next year.

Domestically, gasoline consumption for the week ended July 9 failed to meet bullish expectations, falling 760,000 bpd or 8% from the previous week to 9.283 million bpd. Gasoline stockpiles posted an unexpected build, up 1.0 million bbl and distillate inventories spiked 3.7 million bbl compared with calls for a 900,000 bbl increase.

Concerns over faltering fuel demand domestically offset yet another weekly draw from U.S. commercial crude oil inventories, down by 7.9 million bbl versus expected 4 million bbl drop. Oil stored at Cushing, Oklahoma, the delivery point for West Texas Intermediate contact, fell by 1.5 million bbl to 38.1 million bbl, the EIA said in its weekly report. The larger-than-expected draw came even as domestic production rose by 100,000 bpd from the previous week to 11.4 million bpd.

Near 9:30 a.m. EDT, NYMEX August West Texas Intermediate futures clawed back some of the overnight losses, shedding $0.95 from Wednesday's close to $72.20, and international Brent crude benchmark for September delivery declined $1.07 to $73.70 bbl. NYMEX August ULSD futures dropped more than 2 cents to $2.1141 gallon and the front-month RBOB contact plunged 3.40 cents to near $2.2592 gallon.

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