DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange powered higher during the afternoon session Tuesday, lifting front-month West Texas Intermediate to the highest settlement since early May propelled by expectations for U.S. commercial crude oil inventories to have declined for a fourth consecutive week, while a sharp drop in the U.S. dollar further boosted the oil complex.

The U.S. dollar index extended losses on Tuesday to the lowest level since May 11 at 101.335 as investors positioned ahead of June's inflation report in the United States, scheduled for an 8:30 AM ET Wednesday release. Economists widely expect headline inflation to have declined for the 12th consecutive month in June, dropping from May's 4% reading to 3.1%. If realized, this would mark the lowest reading since March 2021. The core consumer price index, which excludes energy and food prices, is also seen to have retreated to 5% from a decades-high 6.4% led by a gradual but slow easing of housing prices.

Further pressuring the U.S. dollar, Friday's employment report for the month of June revealed U.S. employers added the fewest number of jobs since late 2020, with job gains mostly driven by the government and healthcare services.

Combination of easing inflation and a softening labor market might suggest that the Fed's efforts to cool the economy with the most aggressive rate hiking campaign in decades is finally bearing results. As of Tuesday afternoon, the majority of investors still expect the Federal Reserve to raise rates by 0.25% on July 26 to a 5.25% by 5.5% target range. However, bets for further rate hikes in September and November are quickly fading.

Oil is bought and sold around the world in U.S. dollars, therefore a cheaper greenback makes crude more attractive for foreign buyers.

On the session, West Texas Intermediate for August delivery advanced $1.84 or 2.5% to $74.83 bbl and international crude benchmark September Brent contract rallied to $79.40 bbl, up $1.71 bbl on the session, with both settlements the highest since May 1. NYMEX August RBOB futures added $0.0531 for a $2.6227 gallon settlement, and August ULSD futures gained $0.0305 to $2.5837 gallon.

Also on Tuesday, oil traders positioned ahead of the weekly release of the U.S. inventory report from the American Petroleum Institute at 4:30 PM ET, followed by official government data from the U.S. Energy Information Administration Wednesday morning.

U.S. commercial crude oil stockpiles are projected to have declined by 100,000 bbl for the week ended July 7, which would mark the fourth consecutive weekly drawdown in commercial stockpiles. Since mid-June, commercial stockpiles fell by a combined 14.9 million bbl to a better-than-five-month low 452.182 million bbl.

The estimates for a drawdown come as the U.S. Department of Energy concluded a monthslong disbursement of crude oil from the nation's Strategic Petroleum Reserve.

Gasoline inventories are expected to have fallen by 1.1 million bbl from the previous week, while stocks of distillates, which are mostly diesel fuel, are expected to have slipped by 100,000 bbl from the previous week. Refinery use likely rose by 0.2% from the previous week to 91.3% of capacity.

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