DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange powered higher early Friday as the U.S. dollar gave back gains against a basket of foreign currencies ahead of the release of a key inflation report in the United States and signs of a potential agreement on raising the debt ceiling.

The Personal Consumption Expenditure (PCE) Index -- the Fed's preferred inflation measure -- is expected to have accelerated to 0.4% last month from March's 0.3%, lifting annualized inflation to 4.3%. The Core PCE Index, which excludes energy and food and provides a more accurate picture of underlying inflation, is forecast to remain unchanged at a 4.6% yearly and 0.3% monthly rise. This is a problem for U.S. Federal Reserve officials who voiced their concerns over the slow pace of the disinflation trend, particular in the services sector.

Services continue to be the major driver of U.S. inflation, with the core PCE having been stuck just under 5% for the past six months.

The April PCE inflation report comes at a time when investors are increasingly wondering if the Fed will hike interest rates again in July, after briefly pausing in June. As of Friday morning, close to 60% of investors anticipate the Federal Reserve would pause interest rate increases at its June meeting before hiking again by 0.25% to a 5.25%-5.50% range during July 26 meeting.

Figures released Thursday by the Labor Department show initial jobless claims for the week ended May 20 remained little changed at 229,000, roughly in line with the 2019 pre-pandemic average of 218,000 claims. Despite the most aggressive rate hiking campaign in decades, the labor market has remained a strong point in the cooling economy, exerting upward pressure on wages and prices paid in the services industry.

Separately, the oil complex came under selling pressure late Thursday after Russian Deputy Prime Minister Alexander Novak dismissed the idea of additional production cuts by the OPEC+ coalition. "I think that the price will be slightly higher than $80 per barrel, and I hope that demand will still rise in the summer. A reduction of output by many countries is also going to influence. There is no need for further production cuts at this point," said Novak, referencing a suggestion of additional curbs by Saudi Arabia.

Earlier this week, Saudi oil minister Prince Abdulaziz bin Salman signaled OPEC+ could consider cutting oil production at their early June meeting to squeeze out short sellers.

"I keep advising them (short sellers) that they will be ouching -- they did ouch in April," said bin Salman at the Qatar Economic Forum in Doha on Tuesday, according to Reuters. "I don't have to show my cards, I am not a poker player...but I would just tell them: Watch out!"

On April 2, OPEC announced a surprise production cut of 1.157 million barrels per day (bpd) effective May 1 until the end of the year, with Saudi Arabia and other Gulf producers shouldering the lion's share of that output curb. The reduction comes on top of 2 million bpd cut announced in October 2022 that has so far been the largest cut to OPEC+ output since the start of the pandemic.

Analysts believe a discourse emerged between Saudi Arabia and Russia on the path of future production policy, with Moscow seen recapturing some Saudi market share in Asia as the kingdom restrains production to support prices.

Russia announced a reduction of 500,000 bpd earlier this year, but its oil exports remained near pre-war levels, showing few signs that the cut has been implemented. OPEC+ next meets on June 3-4 to discuss production policy for the second half of the year.

Near 7:45 a.m. EDT, West Texas Intermediate futures for July delivery advanced $0.72 to 72.55 barrel (bbl), and ICE July Brent, the international crude benchmark, gained to $76.84 bbl, up by $0.56 bbl. NYMEX June RBOB futures were $0.0292 higher at $2.7027 gallon, while June ULSD futures moved up $0.0269 to $2.3731 gallon.

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