Oil Futures Eke Out Weekly Gains

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) notched weekly gains after plumbing April lows earlier in the week, mostly edging higher Friday after inflation data released early in the session was in closer alignment with expectations following economic data on Thursday that blindsided the market.

The Personal Consumption Expenditures price index released Friday morning by the Bureau of Economic Analysis (BEA), the Federal Reserve's preferred inflation indicator, increased 2.7% year-on-year in March, a quicker pace than the 2.5% annual gains in January and February. However, the monthly reading was less than the first quarter's 3.4% increase reported Thursday by BEA along with an unexpected slowdown in U.S. economic growth. In its advanced estimate, BEA reported annualized growth by the U.S. economy slowed from 3.4% in the fourth quarter 2023 to 1.6% in the first quarter, well below expectations.

While Friday's report calmed the market, it was another indicator showing inflation has proven to be sticky, delaying rate cuts by the Fed. CME's FedWatch Tool shows investors anticipating only one 25-basis point reduction in the federal funds rate in 2024, which is now in a 5.25% by 5.5% target range. The cut is expected at the Federal Open Market Committee's September meeting, skipping past meetings in May, June, and July. The CME FedWatch Tool finds investors see a meager 6.3% probability for a 25-basis point cut in the policy rate at the FOMC's May 1 meeting.

The U.S. dollar shook off early weakness, strengthening 0.3% from a two-week low in index trading to settle at 105.804 in an outside up session Friday. The stronger dollar capped gains by June West Texas Intermediate (WTI), which settled $0.28 higher at $83.85 a barrel (bbl).

ICE June Brent futures gained $0.50 in the session with a $89.50 bbl settlement, holding below $90 bbl ahead of expiration on April 30. Brent widened its premium to WTI for the fourth straight session Friday to a $5.65 bbl three-month high, reflecting geopolitical risk and weak refined fuels demand in the United States.

Weak domestic consumption is highlighted by a slowdown in demand for the middle of the barrel. Distillate fuel supplied to the U.S. market during the four-week period ended April 19 averaged 3.425 million barrels per day (bpd), down 449,000 bpd, or 11.6%, against the comparable year-ago period, according to the Energy Information Administration (EIA). U.S. economic growth has a close correlation with distillate fuel demand, with weak industrial demand and a prolonged recession in freight shipments amplifying sluggish demand for diesel fuel.

NYMEX May ULSD futures edged higher on the week with a $2.5482-gallon settlement but softened 22 points in the session. On Monday, ULSD futures fell to a $2.5039 19-week low on a spot continuous basis.

NYMEX May RBOB futures registered a fourth consecutive increase on Friday, up $0.0064 with a $2.7646 gallon settlement, after testing retracement support with a $2.6454 six-week low on Tuesday. Gasoline inventory at 226.743 million bbl on April 19 is 8.472 million bbl below the five-year average, EIA data shows.

Brian L. Milne can be reached at brian.milne@dtn.com.