Oil Futures Halt Losses Ahead of Key U.S. Economic Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged higher in early morning trade Friday. Although, both crude benchmarks are on course for better than 2.5% losses this week, underpinned by the prospects of additional supplies from the Organization of the Petroleum Exporting Counties and partners outside the cartel after unconfirmed reports suggested the group has reached a compromise with the United Arab Emirates on raising the country's production baseline.

Further weighing on the markets this week, sluggish U.S. fuel demand and rising inflation heightened investors' concerns over slowing growth in the world's largest economy. Distillates supplied to the U.S. market, a proxy for demand and economic growth, declined for the second week through July 9 to a six-month low 3.164 million barrels per day (bpd).

Meanwhile, U.S. gasoline consumption plummeted 760,000 bpd or 8% during the holiday week covering the July 4 weekend -- typically the peak for summer driving demand. Multi-year high gasoline prices at the pump and rising costs for accommodations and food might have kept Americans off the roads during the Independence Day weekend.

On Thursday, U.S. Federal Reserve Chairman Jerome Powell acknowledged before lawmakers that inflation had risen to uncomfortably high levels but maintained that rising costs are "transitory" and tied to the economy's reopening. "We're experiencing a big uptick in inflation, bigger than many expected, bigger certainly than I expected, and we're trying to understand whether it's something that will pass through fairly quickly, or whether, in fact, we need to act," Powell said in response to questioning during a Senate Banking Committee hearing on Thursday.

Echoing the Fed's chief comments, U.S. Treasury Secretary Janet Yellen warned of "several more months of rapid inflation" before price pressures finally ease.

Against this backdrop, investors await the release of U.S. retail sales for June, due out 8:30 a.m. ET, followed by the University of Michigan's consumers sentiment index for indication on whether higher inflation have cooled off consumers' appetite for spending. Economists expect retail numbers for June will show an improvement after the previous month's larger-than-expected 1.3% drop, following a 0.9% rise in April.

Unconfirmed reports this week suggested Saudi Arabia and the United Arab Emirates have reached a deal to lift output quotas next month, allowing for the latter to raise its production baseline against which it references cuts. Earlier this month, OPEC+ agreement to boost crude output by 400,000 bpd from August to December 2021 was blocked by UEA opposition based on outdated quota allowance. Should reports be confirmed by OPEC+ officials in the coming days, the deal would open the door for other members of the alliance to raise their production quotas, undermining compliance with the joint agreement.

On the other hand, the deal removes uncertainty around future OPEC+ supplies and reduces the chance of an all-out price war among the members of the cartel and Russia-led partners. In early morning trading, NYMEX August West Texas Intermediate futures edged higher to near $71.78 per barrel (bbl), and international Brent crude benchmark for September delivery traded little changed near $73.58 bbl. NYMEX August ULSD futures added 0.17 cents to $2.1140 gallon and the front-month RBOB contact gained 0.78 cents to $2.2581 gallon.

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

Liubov Georges