Futures Movers: Oil prices climb to highest since early May, buoyed by a weaker dollar and supply cuts

Price action

• West Texas Intermediate crude for August delivery
  CL00,
  +0.86%

  CLQ24,
  +0.39%
  gained 99 cents, or 1.3%, to $75.82 per barrel on the New York Mercantile Exchange after trading as high as $76.08, the highest front-month intraday level since May 2, FactSet data show.

• September Brent crude
  BRN00,
  +0.53%
   
  BRNU23,
  +0.53%
  was up 90 cents, or 1.1%, at $80.30 per barrel on ICE Futures Europe, topping $80 intraday for the first time since May 1.

• August gasoline
  RBQ23,
  +1.24%
   gained 1.4% to $2.6588 a gallon, while August heating oil
  HOQ23,
  +0.32%
   rose 1.2% to $2.6135 per gallon.

• August natural gas
  RBQ23,
  +1.24%
  fell 3.2% to $2.644 per million British thermal units after gaining more than 2% on Tuesday.

Market drivers

Oil prices have continued to rise on Wednesday following U.S. data showing consumer prices increased by a modest 0.2% in June and the rate of inflation slowed to the lowest level since 2021. The yearly rate of inflation decelerated to 3% from 4% in the prior month.

It looks like oil traders are focusing more on easing inflation pressures meaning that the Federal Reserve may not need to raise interest rates much further, “meaning that the currently robust economic conditions may be able to continue for a while,” Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch.

“This has helped to boost demand expectations, while offshore supply from Saudi Arabia and Russia is still being held back,” he said.

A weaker U.S. dollar can provide support for dollar-denominated prices of oil. In Wednesday dealings, the ICE U.S. Dollar index
DXY,
-1.14%
was down 1.1% at 100.60.

Meanwhile, the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, recently agreed to extend their oil-production cuts through 2024 and Saudi Arabia voluntarily agreed to extend its voluntary production cut through August.

In a monthly report released Tuesday, the Energy Information Administration said it expects global oil supplies to decline over the next five quarters because of those reductions in output.

The market is still dealing with a supply cut from Saudi Arabia, along with the refilling of the U.S. Strategic Petroleum Reserve, said Tariq Zahir, managing member at Tyche Capital Advisors. The U.S. Energy Department said last Friday that it plans to buy about 6 million barrels of oil for the nation’s oil reserve, following the historic drawdown of 180 million barrels announced by the Biden administration in the spring of 2022.

In addition, there’s been a quiet start to the Atlantic hurricane season, which began on June 1, but that “could change at a moment’s notice,” said Zahir.

The U.S. consumer-price index came in weaker than expected and bond yields have also weakened, allowing “risk assets catch a bid,” he told MarketWatch. The CPI data also caused weakness in the dollar, “which has provided strength in the energy complex.”

Supply data

Gains for oil prices came even as the EIA on Wednesday reported that U.S. commercial crude inventories climbed by 5.9 million barrels for the week ending July 7.

On average, analysts polled by S&P Global Commodity Insights expected the report to show a decline of 1 million barrels. The American Petroleum Institute, a trade group, had reported late Tuesday that domestic crude supplies rose by 3 million barrels last week, according to sources citing the data.

The EIA inventory data were a surprise, showing an increase in crude supplies when a decline was expected, said Zahir.

However, “if we see any further weakness in crude, we would use this as a buying opportunity,” he said. Supply cuts, weaker U.S. dollar, hurricane season — “all of these factors … will keep a bid to crude oil in the days and weeks ahead.”

The EIA report showed weekly inventories of gasoline were generally unchanged last week, while distillate supplies increased by 4.8 million barrels. Analysts had forecast a weekly fall of 1.1 million barrels for gasoline and an increase of 150,000 barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 1.6 million barrels for the week, the EIA said, while stocks in the SPR edged down by 400,000 barrels.