WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange traded little changed early Wednesday as investor sentiment turned cautious ahead of the release of the inventory report from the U.S. Energy Information Administration and update on inflation levels last month, with consensus calling for further easing of consumer prices amid a cooling economy.
Economists forecast headline inflation in the United States continued to decelerate in June, dropping from 4% year-over-year in May to 3.1%, led by a retreat in energy and food prices. This would mark the lowest annualized inflation level since May 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.
Some caution, however, that although inflation in the goods sector remains subdued and housing likely saw further deceleration of prices, the Fed needs to see more of a slowdown in core services ex-housing to be confident that headline inflation is headed to the 2% target. For this to happen labor market conditions need to soften further and with it wage growth.
Government data released last Friday showed employment growth has slowed somewhat to 209,000 jobs added in June, which was the fewest number of job gains since late 2020. What's more, employment for both May and April were revised lower, with average job growth over the period now 110,000 lower than previously reported.
The 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 Wednesday morning, a 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.
Near 7:30 a.m. ET, NYMEX August West Texas Intermediate was little changed near a three-month high $74.88 bbl and the international crude benchmark September Brent contract slipped to $79.39 bbl. NYMEX August RBOB futures traded also flat near $2.6220 gallon, and August ULSD futures edged higher to $2.5877 gallon, up by $0.0040 in overnight trading.
Also on Wednesday, investors are awaiting the release of the weekly inventory report from the U.S. Energy Information Administration, scheduled for 10.30 AM ET. A preliminary survey from the American Petroleum Institute showed on Tuesday commercial crude inventories unexpectedly rose 3.026 million bbl last week versus an expected 100,000 bbl draw. If realized, this would be the first decrease in the domestic crude oil stocks since mid-June. Stocks at the Cushing, Oklahoma tank farm, the New York Mercantile Exchange delivery point for West Texas Intermediate futures, dropped 2.150 million bbl. Further details of the report revealed that gasoline inventory posted a build of 1.004 million in the reviewed week, also missing an expected 1.1 million bbl draw. Distillate inventory, meanwhile, rose 2.908 million bbl compared with an expected 100,000 bbl decrease. Oil traders will also keep a close eye on demand figures in this week's inventory report after gasoline consumption in the prior week surged 9.599 million bpd - the highest rate since October 2021, while the fifth greatest weekly demand rate since the end of pandemic lockdowns. The bullish reading aligns with expectations for strong travel demand during the extended Independence Day holiday, with the Automobile Association of America having projected holiday travel of 50.7 million Americans, with road travel at 43.2 million.
Liubov Georges can be reached at Liubov.Georges@dtn.com