DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, with West Texas Intermediate notching a weekly gain after the number of oil-targeted rigs in the United States decreased for the fourth consecutive week through May 26th to the lowest level in a year amid higher operating costs as inflation unexpectedly accelerated heading into the summer months.

Personal Consumption Expenditures index, the Federal Reserve's preferred inflation measure, picked up pace to 0.4% in April as consumer spending accelerated, lifting the annualized rate of inflation to 4.4%. Analysts mostly expected a softer monthly reading of 0.3% and for a 4.3% yearly advance. Core PCE, which excludes the energy and food categories to provide a less volatile picture of underlying inflation, increased at an even faster rate of 4.7% over the last 12 months.

That is a problem for Fed officials who voiced their concern over the slow pace of disinflation, particularly in the services sector. Services continue to be the major driver of U.S. inflation, with core PCE stuck just under 5% for the past six months.

The April reading for inflation comes at a time when investors are increasingly wondering if the Fed will hike interest rates again at their June 14th Federal Open Market Committee meeting. Immediately after the data release, investors repriced the odds for another increase in the federal funds rate when they meet next month, with over 60% of investors anticipating the central bank would lift the overnight bank borrowing rate to a 5.25% to 5.5% target range.

Further supporting the case for another rate hike, 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 2019 pre-pandemic average of 218,000 first-time claim filings. Despite the most aggressive rate hiking campaign in decades, the labor market remains a strong point in the cooling economy, exerting upward pressure on wages and prices paid in the services industry.

Faced with these headwinds, domestic producers reduced the number of oil-targeted rigs by five this week to 570, the lowest oil rig count since May 13, 2022, according to data from Baker Hughes this afternoon.

Permian basin in west Texas, east New Mexico, the most prolific basin in the United States, recorded a weekly oil rig tally of 350, only marginally higher from the 342 rigs recorded in the comparable week a year ago. The number of active rigs in Permian decreased for three out of past four weeks.

WTI crude continues to trade above $70 per barrel (bbl), which is considered a favorable price environment for exploration and production activity. However, the U.S. rig count has been falling consistently in recent weeks, raising concerns that issues facing domestic producers are structural in nature, including regulatory burdens and labor shortages among others.

Baker Hughes data also shows a decline in natural gas-targeted drilling by four to 137 rigs. June natural gas futures on NYMEX expired down $0.126 at $2.181/MMBtu three-week low Friday amid high storage, which is up 29% against the comparable period in 2022.

At settlement, WTI futures for July delivery advanced $0.84 to $72.67 bbl, and ICE July Brent, the international crude benchmark, gained $0.69 to $76.95 bbl. NYMEX June RBOB futures settled $0.0299 higher at $2.7034 gallon, and June ULSD futures moved up $0.0231 to $2.3693 gallon.

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