DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange followed equity markets higher on Friday as investors re-assessed their outlook for tighter supplies available on the global market, shrugging off pressure from a rallying U.S. dollar.

The U.S. dollar extended gains into the fourth consecutive session on Friday, gaining 0.22% against global peers as investors looked to the Federal Reserve's meeting next week that is widely expected to deliver another 0.25% rate hike. The move would lift the federal funds rate to a 5.25%-5.5% range, the highest since 2001. With inflationary pressures easing, most investors expect no change to rates at the September meeting and just 27% forecast another hike by the November meeting.

This week's economic data showed the U.S. labor market remains resilient, with initial unemployment claims falling to the lowest level in three months at 228,000 applications.

Economists widely expected the labor market to show some signs of rising layoffs this summer amid a manufacturing recession and slowing consumer spending. For context, U.S. retail sales slowed more than expected in June, data from the Census Bureau showed this week, rising at just 0.2% pace and below the expected 0.5%.

This might suggest that typical transmission lines between the labor market and strength of underlying demand might have been compromised during the pandemic months as employers are now more inclined to hoard labor.

Near 8.30 AM ET, West Texas Intermediate September contract on NYMEX advanced $1 to $76.68 bbl, while international crude benchmark Brent for September delivery added $1.05 to $80.69 bbl. NYMEX August RBOB futures advanced $0.0454 to $2.7886 gallon, and August ULSD futures strengthened to $2.7317 gallon, up $0.0673 so far on a session. The U.S. dollar index jumped 0.21% against the basket of foreign currencies to trade near 100.800 against the basket of foreign currencies.

Friday's move higher in the oil complex follows EIA's inventory report, showing oil stored in Cushing, Oklahoma farm tanks -- delivery point for West Texas Intermediate contract -- plunged 2.9 million bbl during the week-ended July 14. This marked the steepest drawdown in Cushing stockpiles in nearly two years, adding to the evidence global inventories are gradually drawing as a result of OPEC+ extended production cuts announced on June 4. EIA said in its latest Short-Term Energy Outlook global oil inventories will gradually transition from builds seen over the first half of the year to consistent draws until the fourth quarter 2024.

"This transition puts upward pressure on global oil prices over the forecast period. Global oil inventories increased by an average of 0.6 million bpd in 1H23, and we forecast they will decrease by an average of 0.7 million b/d in 2H23. Inventories continue to fall by an average of 0.4 million b/d in the first three quarters of 2024 before increasing by 0.1 million b/d in 4Q24," said EIA in its July STEO.

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