DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced in early trade Friday ahead of the release of the highly anticipated U.S. consumer price index that is expected to show persistently high inflation continued in May amid an ongoing surge in prices for retail gasoline that are quickly approaching a record-high $5 gallon nationally.

U.S. consumer prices likely rose at the fastest rate in nearly 40 years in May, moderating just slightly from April's year-on-year 8.3% increase, according to market consensus, with the U.S. Bureau of Labor Statistics to release the report at 7:30 a.m. CDT.

Excluding food and energy, so-called core inflation is seen moderating to 0.5% from 0.6% recorded in April, which would bring the annualized increase in consumer prices to 5.9%. Headline inflation, meanwhile, is expected to spike 0.7% from the previous month from 0.3% seen April, boosted by a surge in retail prices for gasoline that have risen more than 40% from a year earlier.

Some economists suggest gasoline prices will need to go much higher from where they are now to have a meaningful impact in slowing demand. Energy Information Administration reported gasoline demand in the United States topped 9.1 million barrels per day (bpd) for the first week of June -- the highest weekly rate this year, and some 700,000 bpd above the comparable week in 2021.

May's CPI also comes ahead of next week's Federal Open Market Committee meeting when central bank officials are poised to again lift the federal funds rate. Investors expect the Federal Reserve will raise the benchmark interest rate by 50 basis points on June 15, and to again hike the rate by another 50 when they again meet in July. Should inflation go higher than expected, this would almost certainly set the table for a more aggressive interest rate hike in the fall, according to economists.

In financial markets, U.S. equity futures traded mixed early Friday following Thursday's late-hour selloff on Wall Street that shed more than 600 points from Dow Jones Industrials. DJI futures indicate a 50-point opening bell dip while those linked the S&P 500 are priced for a 1.5% fall. Futures linked to the Nasdaq are looking at a 20-point opening bell gain. Ten-year Treasury bond yields dipped to 3.03% and the U.S. Dollar Index rose 0.28% against a basket of six global currencies to 103.4 in overnight trading.

On Wednesday, U.S. Energy Information Administration reported domestic distillate inventories started to climb seasonally last week, rising 2 million barrels (bbl) to 109 million bbl, which should ease some concerns about low inventory levels. But even with the recent increase, stocks are still at the lowest level since 2005, and they are not rising especially rapidly, which is likely to keep prices on an upward trend.

Distillate stocks usually increase this time of year as refineries ramp up crude processing to produce more gasoline for the summer driving season. There are also signs that the business cycle in the United States has started to slow, weighing on demand for middle distillates that are typically used in construction, manufacturing, and freight shipments. EIA on Wednesday reported implied demand for middle distillates fell to the second lowest weekly rate this year at 3.65 million bpd after remaining below 4 million bpd since late March.

Near 6:30 a.m. CDT, NYMEX West Texas Intermediate for July delivery advanced $0.82 to $122.37 bbl, while international crude benchmark Brent contract for August rallied to $124.13 bbl. NYMEX RBOB July contract gained 2.67 cents to $4.3029 gallon and ULSD July futures increased 8.25 cents to $4.4862 gallon.

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