DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange extended losses early Friday in front of the Memorial Day weekend, with West Texas Intermediate and Brent down for a fifth consecutive session, falling to 13- and 15-week lows, respectively.

The market is adjusting to the likelihood interest rates will remain higher for longer as inflation pressure prevails, with central bank officials expressing patience before easing monetary policy through a reduction in the federal funds rate. The federal funds rate is now in a 5.25% by 5.5% target range.

Charlie Bilello with Creative Planning noted the continued fight against inflation, quoting a recent comment from Federal Reserve Chairman Jerome Powell, who said, "we'll need to be patient and let restrictive policy do its work. I do think it's really a question of keeping policy rates at the current rate for longer than had been thought."

"This is a big shift from his dovish rhetoric late last year. And as a result, we've seen a huge shift in markets," said Bilello.

Data from the Bureau of Labor Statistics shows the year-on-year change in the U.S. Consumer Price Index has been above 3% for 37 consecutive months through April, with CPI in April up 3.4% annually. The Fed's inflation target is 2%.

While down from the 40-year highs experienced in June 2022, inflation is stubbornly holding at a more than 30-year high.

Minutes released Wednesday for the Federal Open Market Committee's April 30-May 1 meeting noted progress in lowering inflation slowed in the first quarter, and the recent increases in inflation pressure were broad based. Fed officials also highlighted the "harm" high inflation has caused to households by reducing their purchasing power.

Market expectations for multiple rate cuts this year have vanished. Based on CME's FedWatch Tool, the market expects one 25-basis point cut in the federal funds rate this year, with confidence in that rate reduction low. Coming into 2024, the high end of expectations suggested as many as six 25-basis point cuts in the key overnight bank borrowing rate.

The combination of high interest rates and persistent inflation will slow economic growth, which has been apparent in U.S. manufacturing activity, which remains in contraction. Pressure on consumer purchasing power also weighs on economic growth, as well as driving demand.

The market will get the latest read on consumer psychology at 10 AM ET, when the University of Michigan releases their closely watched Consumer Sentiment Index for May. The preliminary reading for May was at a 67.4 six-month low.

Weakness in consumer sentiment is not seen deterring Americans from hitting the highways this weekend, with today marking the second day for the Memorial Day holiday weekend. AAA expects a record number of people to travel more than 50 miles over the holiday weekend, projecting 38.4 million holiday travelers, up 4% from year ago and 1.9% above the pre-COVID Memorial Day weekend in 2019.

Near 8 AM ET, July WTI futures were down $0.22 at $76.65 barrel (bbl), trimming an overnight decline to $76.15 bbl -- the lowest print on the spot continuation chart since late February. July Brent futures were $0.26 lower at $81.10 bbl, edging off an overnight print at $80.65 -- the lowest trade since early February.

Oil product futures are trading near one-week lows, with the June RBOB contract down $0.0154 at $2.4540 gallon, and June ULSD futures $0.0047 lower at $2.4071 gallon.

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