DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange advanced for the third consecutive session on Thursday, sending the international price benchmark above $81 bbl after International Energy Agency and Organization of the Petroleum Exporting Countries forecasted a widening supply deficit on the global oil market in the second half of the year, while an ongoing selloff in the dollar index triggered by a softer inflation print in the United States further boosted the oil complex.

U.S. dollar index hit a new 15-month low of 99.425 against a basket of foreign currencies Thursday, extending losses for a sixth consecutive session after the Producer Price Index released Thursday morning offered fresh evidence of easing inflation. PPI, a measure of inflation at the wholesale level, rose at the slowest pace since August 2020, gaining a mere 0.1% in the 12 months ending in June. Figures for May were also revised lower to show the index falling to a negative 0.4% instead of the previously reported 0.3%.

PPI measures price changes for produced goods at the factory gate before they reach consumers and therefore are often seen as an early indicator of inflation reflected in the Consumer Price Index.

Earlier this week, investors got a glimpse of inflation at the consumer level, with the CPI falling for a 12th consecutive month in June to the lowest level in over two years. What's more, core consumer prices, excluding energy and food prices, fell below a 5% annualized rate for the first time since December 2021, suggesting the disinflationary trend that first started in the goods-producing sectors of the economy has now spread into labor-intensive services.

Inflation slowed for several key categories associated with the reopening of the economy, including housing, transportation services, and used cars, among others. This matters greatly for the Federal Reserve that has stressed the importance of disinflation to take hold in the services sector before the central bank would pause its aggressive rate-hiking campaign.

As of Thursday afternoon, 92.4% of investors still expect the Federal Reserve to raise rates by another 25 basis points during the July 26 meeting to a 5.25% by 5.5% target range. However, prospects for further rate increases are now less certain, undermining bullish bets for the U.S. dollar. A weaker U.S. dollar is typically supportive for the oil complex as crude 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, NYMEX August West Texas Intermediate advanced $1.14 to $76.89 bbl and the September Brent contract rallied $1.25 to $81.36 bbl. NYMEX August RBOB futures gained $0.0116 to $2.6786 gallon, and August ULSD futures moved $0.0108 higher to $2.6104 gallon.

Also on Thursday, IEA and OPEC released their monthly market reports with both the Pairs-based agency and cartel forecasting a widening supply deficit on the global market despite taking a somewhat different view on demand outlook. IEA in its report downgraded its worldwide oil consumption projection by 220,000 bpd this year to 102.1 million bpd, which is still a record high. In contrast, OPEC revised projected 2023 demand up by about 100,000 bpd from last month's assessment to 102 million bpd, mainly due to higher demand estimated in China for the second quarter. IEA, meanwhile, revised China's demand growth lower.

"Amid an overall slackening in oil demand growth, China's widely anticipated reopening has so far failed to extend beyond travel and services, with its economic recovery losing steam after the bounce earlier in the year," said IEA.

On the supply side, OPEC crude oil production is estimated to have risen by 91,000 bpd in June to 28.189 million bpd, according to secondary sources cited in OPEC's Monthly Oil Market Report. Iran and Iraq led the monthly increase, up 56,000 bpd to 2.754 million bpd and 54,000 bpd to 4.181 million bpd, respectively. Crude production also increased in Saudi Arabia, up 22,000 bpd to 9.998 million bpd, and in Nigeria, up 21,000 bpd to 1.298 million bpd.

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