DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange retreated on Thursday, dragged lower by a rallying U.S. dollar index after better-than-expected readings for unemployment claims and retail sales raised the odds for Federal Reserve officials to continue hiking interest rates this summer to avoid reigniting inflation.

St. Louis Federal Reserve President James Bullard in a Financial Times interview said he is leaning toward another 0.25% hike in the federal funds rate at the next Federal Open Market Committee meeting in June as "an insurance against inflation."

"I do expect disinflation, but it's been slower than I would have liked, and it may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control," Bullard said in the interview.

A 0.25% increase would lift the federal funds rate to a 5.25%-to-5.5% target range.

More evidence of a still-strong U.S. economy could be found in Thursday's unemployment claims that showed the number of Americans filing for unemployment benefits last week unexpectedly fell by the most since 2021. The Labor Department reported initial claims for the week ended May 13 decreased by 22,000 to 242,000, and continued claims filed by Americans who are consecutively receiving unemployment benefits dropped to 1.79 million. The decline was realized after Massachusetts state officials acknowledged they are "experiencing an increase in fraudulent claim activities" involving unemployment benefits.

For months, the labor market has remained a strong component for the economy, despite an aggressive rate-hiking campaign by the central bank. The most recent projections from the Fed show that officials expect the national unemployment rate to rise to 4.5% by the end of this year, up from the current rate of 3.4%, meaning that jobless claims must jump sharply in coming months for the projection to be realized.

With the labor market largely intact, Americans increased their retail spending in April for the first time in three months, according to the U.S. Commerce Department. Retail sales -- a measure of spending at stores, online and in restaurants -- rose a seasonally adjusted 0.4% in April from the previous month after declining in February and March -- a sign of consumers continued resilience despite high inflation and rising interest rates. April's modest increase in retail spending may reflect consumers' continued shift from buying goods during the pandemic years to paying more for services, including airfares and restaurants.

Thursday's lower settlements in the oil complex were also spurred by a bearish inventory report in the United States that showed continued builds in domestic crude oil inventories and weaker fuel demand ahead of the start of a busy summer season. U.S. commercial crude oil inventories increased for the second straight week through May 12, rising by more than 7 million barrels (bbl) despite pickup in refinery run rates and a strong pace for exports.

Refinery run rates rebounded to the highest level since late March at 92%, processing 245,000 bpd more crude from the previous week.

Demand for refined fuels, however, eased from the strong pace seen at the start of the month, with gasoline consumption retreating below 9 million barrels per day (bpd), down 395,000 bpd from the prior week. On a four-week average basis, gasoline demand averaged 9.1 million bpd, up 2.9% from the same period last year. Distillate fuel demand, which closely correlates with economic activity, also retreated from the prior week to 3.736 million bpd, some 2% below the previous year.

At settlement, WTI futures for June delivery declined $0.97 to $71.86 per bbl, and the international crude benchmark Brent contract fell by a steeper $1.10 to $75.86 per bbl. NYMEX RBOB June futures finished the session little changed at $2.5683 per gallon, while ULSD June futures retreated $0.02 to $2.4026 per gallon.

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