Oil Futures Lower Early Friday But Headed for Weekly Gains

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange declined in early morning trade Friday, although all contacts are on course for hefty weekly gains spurred by large inventory draws from U.S. commercial crude-oil and petroleum product inventories. These draws were exacerbated by extended production outages in the offshore Gulf of Mexico and improving macroeconomic indicators in the Eurozone and domestically at the end of the third quarter.

A surprise rebound in U.S. retail sales last month, up 0.7% versus calls for 0.8% decline, prompted a myriad of upgrades to third quarter economic growth forecasts. The so-called core retail sales, a measure most closely corresponding to the spending component of gross domestic product, increased by a larger 2%.

"We maintain our confidence in the historic strength of consumers and fully expect a record year for retail sales and a strong holiday season for retailers," said President of National Retail Association Matthew Shay.

Economists have been downgrading their gross domestic product (GDP) estimates for the current quarter, citing faded stimulus, lackluster recovery in the labor market and a flare-up of COVID-19 infections fueled by the delta variant of the coronavirus.

Consumer sentiment literally plunged in August, down more than 10 points to 70.3 -- one of the worst showings on record. The staggering loss of confidence was mostly attributed to dashed hopes the pandemic would soon end and lives could return to normal, among other factors. Data from the Centers of Disease Control and Prevention showed the nation's seven-day case average decreased almost 14% in the week ended Sept. 10 to 136,448, falling for the first time since early June. The current seven-day hospitalization average for Sept. 1-7 also declined, down 4% from the previous week's average to 11,754. Meanwhile, about 208.3 million Americans have received at least one dose of the COVID vaccination -- 72.7% of the total U.S. population -- and more than 177.4 million people have gotten both doses, about 63.4% of the population.

The University of Michigan will release an updated confidence index for early September at 10:00 a.m. EDT, with markets expecting a modest month-on-month improvement. The U.S. dollar declined marginally Friday morning to 92.830 after rallying to a three-week high settlement of 92.919 on Thursday, weighing on the broader energy complex at the end of the trading week. The greenback's explosive rally was triggered by growing expectations that the U.S. Federal Reserve could soon taper its $120 billion in bond and asset-purchases as macroeconomic indicators improved in early September. Fed officials have said in recent interviews and public statements that they could begin tapering asset purchases later this year, although gave no details on exact timeline. While they are unlikely to do so at their meeting Sept. 21-22, Fed Chairman Jerome Powell could use that gathering to signal they are likely to start the process at their following session Nov. 2-3.

Further boosting the oil complex this week, inventory data from the U.S. Energy Information Administration showed U.S. total crude and petroleum product supplies declined more than 10 million barrels (bbl) in the week-ended Sept. 10, with 6.4 million bbl of that drawdown realized in commercial crude stocks. At 417.4 million bbl, domestic crude supplies now stand about 7% below the five-year average. The larger-than-expected draw came as refinery ran rates nationwide increased just 0.2% on the week and domestic production gained a modest 100,000 barrels per day (bpd) after plunging 1.2 million bpd in the prior week.

In early morning trade, the NYMEX October West Texas Intermediate contract slipped 32 cnts to $72.29 bbl and Brent crude for November delivery edged lower 23 cents to $75.47 bbl. NYMEX October ULSD futures remained little changed near $2.2104 gallon and front-month RBOB futures declined 0.95 cents to $2.1677 a gallon.

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

Liubov Georges