WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced in early morning trade Friday, with the front-month West Texas Intermediate contact holding above $71 per barrel (bbl) as investors await the release of key inflation data in the United States that could shed light on the direction of Federal Reserve monetary policy in the coming months.
Investors are bracing for the highest inflation reading in over forty years. Economists predict the consumer price index slated for release Friday morning to show a 0.7% gain for November, which would translate into a 6.7% increase from a year ago.
If the actual figure meets expectations, this will mark the highest year-over-year price increase since 1982. The Biden administration already signaled that the November inflation data could be higher than expected. "The information being released tomorrow on energy in November does not reflect today's reality and it does not reflect the expected price decreases in the weeks and months ahead, such as the auto market," said President Biden on Thursday.
Federal Reserve Chairman Jerome Powell said last week that the central bank needs to be ready to respond to the possibility that inflation might not recede in the second half of next year as most forecasts have expected. The implications for Federal Reserve policy are clear; Chairman Powell's hawkish turn last week, alongside his decision to retire the word "transitory" in terms of inflation pressures, likely means a faster pace of bond purchase tapering from the central bank next week, as well as earlier-than-expected rate hikes. Chairman Jerome Powell said he expects policymakers in December to discuss accelerating the timetable for the tapering of monthly bond purchases.
Separately, inventory data released from the U.S. Energy Information Administration on Wednesday showed commercial crude oil inventories fell by a smaller-than-expected 240,000 bbl in the week ended Dec. 3 to 432.87 million bbl as strengthened refinery demand offset rising production. However, at the Cushing, Oklahoma, hub crude stocks rose 2.37 million bbl to a seven-week high 30.92 million bbl. Nationwide gasoline stocks moved 3.88 million bbl higher to 219.3 million bbl, while distillate inventories climbed 2.73 million bbl to 126.6 million bbl.
EIA in its latest Short-Term Energy Outlook projects oversupply for next year despite adjusting their expectation for world oil production down 490,000 barrels per day (bpd) to 100.93 million bpd, with the Organization of the Petroleum Exporting Countries this month also projecting a supply surplus in early 2022. OPEC+ earlier this month agreed to move ahead with their 400,000 bpd production increase in January despite the weakening demand outlook, sticking to their July agreement of gradually unwinding production cuts instituted in April 2020, but also said they could adjust that decision if they believe demand will weaken further than projected.
Oil production is also growing in the U.S., with the EIA on Wednesday reporting the third 100,000 bpd weekly increase in domestic oil output through Dec. 3 to average 11.7 million bpd. That's the greatest weekly production rate since the depths of U.S. lockdowns in response to the COVID-19 pandemic in April 2020. EIA projects U.S. output to average 11.8 million bpd in 2022, climbing to 12.1 million bpd in the fourth quarter.
Near 6:45 a.m. ET, January WTI futures gained $0.55 to $71.53 bbl and ICE February Brent added $0.56 to $74.98 bbl. NYMEX January ULSD futures edged 0.36 cents higher to $2.2539 gallon, and January RBOB futures gained to $2.1388 gallon.
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