WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange strengthened on Friday, with both crude benchmarks notching their fifth consecutive weekly gain on a combination of a retreating U.S. dollar, unplanned refinery outages in the U.S. Gulf Coast amid extreme heat, and receding concerns over recession offset by largely supportive macroeconomic data.
Friday's economic data further bolstered the case for the U.S. economy to achieve a "soft landing," a scenario where inflation falls as monetary policy tightens without inducing recession.
The personal consumption expenditures index, the preferred inflation measure by the Federal Reserve, increased 0.2% in June from the prior month and 3% from a year earlier, the Commerce Department said Friday morning. That marked the smallest annual gain since March 2021. Food prices decreased 0.1%, services rose 0.3%, while the cost of energy jumped 0.6%. Data released Friday also showed labor costs in the second quarter rose at their slowest pace in two years as wage growth cooled.
Surprisingly, an improving inflation environment comes at a time when the U.S. economy has picked up pace from the first quarter, with gross domestic product expanding at annualized rate of 2.4% from April to June, beating expectations for a 1.8% growth rate.
Against this backdrop, the Federal Open Market Committee raised borrowing costs for an 11th time since 2022 by 0.25% on Wednesday to the highest level in 22 years at a 5.25% to 5.5% target range.
Fed Chairman Jerome Powell during a news conference Wednesday afternoon following the rate announcement reiterated that the central bank would continue its data-dependent approach when deciding on its next policy move.
"It's certainly possible that we would raise the federal funds rate again at the September meeting if the data warranted," said Powell. "And I would also say it's possible that we would choose to hold steady, and we're going to be making careful assessments, as I said, meeting by meeting."
Investors, however, project an 80% chance that the central bank will hold the federal funds rate unchanged during their Sept. 20 meeting, and only 29% of investors see a chance for another rate increase in November.
In financial markets, U.S. dollar index pulled back 0.14% against a basket of foreign currencies to settle the session at 101.399, lending upside support for West Texas Intermediate futures, with the front-month contract settling $0.49 higher at $80.58 per barrel (bbl). U.S. dollar and WTI have an inverse relationship, in which a cheaper greenback typically makes the U.S. crude benchmark more attractive for overseas buyers. International benchmark Brent for September delivery added $0.75 per bbl for a $84.99 settlement -- the highest settlement price since mid-April. In refined fuels, NYMEX RBOB August contract added $0.0053 to $2.9558, parring an advance to a $2.9936-per-gallon nine-month high. August ULSD futures advanced $0.0417 to $2.9586 per gallon, the highest settlement on the spot continuous chart since Feb. 1.
Underpinning RBOB and ULSD futures gains are unplanned disruptions at several refiners in Texas and Louisiana that have suffered from an extreme heat wave in recent weeks. Currently, a gasoline-making unit at ExxonMobil's 522,500 bpd Baton Rouge refinery in Louisiana, is shut for three to four weeks of unplanned repairs after tripping offline on July 20. PADD 3 refinery runs fell 1.5% to 93.3% of regional capacity during the week ended July 21, according to the Energy Information Administration, which compares with a 97.2% run rate averaged in July 2022. Domestic gasoline supplies currently stand at 7% below the five-year average and are likely to continue a destocking pattern amid refinery unit outages.
Liubov Georges can be reached at Liubov.Georges@dtn.com