William Watts, MarketWatch

NEW YORK
EnergiesNet.com 06 10 2022

Oil futures ended lower Friday, erasing early gains after a much hotter-than-expected U.S. May inflation report sent the dollar higher and sank equities, though the U.S. benchmark logged a seventh straight weekly gain.

Price action

• West Texas Intermediate crude for July delivery CL00, -0.84% CL.1, -0.84% CLN22, -0.84% fell 84 cents, or 0.7%, to close at $120.67 a barrel on the New York Mercantile Exchange, leaving it with a weekly gain of 1.5%.
  
  
• August Brent crude BRN00, -0.07% BRNQ22, -0.07%, the global benchmark, fell $1.06, or 0.9%, to settle at $122.01 a barrel on ICE Futures Europe, leaving it with a 1.9% weekly gain and its fourth straight winning week. Both WTI and Brent ended at three-month highs earlier this week.
  
  
• Back on Nymex, July gasoline RBN22, -2.71% retreated 2.4% to $4.1722 a gallon, dragging it to a 1.9% weekly fall, after ending Thursday at a record.
  
  
• July heating oil HON22, -1.14% dropped 0.8% to $4.3667 a gallon, rising 2% for the week.
  
  
• July natural-gas futures NGN22, -2.32% dropped 1.3% to end at $8.85 per million British thermal units, rising 3.8% for the week.

Market drivers

Crude-oil prices pulled back from nearly three-month highs as the ICE U.S. Dollar Index DXY, +0.94%, a measure of the currency against a basket of six major rivals, jumped 1%. The move came after a May consumer-price index reading at a year-over-year rate of 8.6%, a 40-year high, stoked expectations the Federal Reserve will be even more aggressive than anticipated in raising interest rates in an effort to get surging prices under control.

See: ‘Catastrophically bad’ inflation report is boosting chances of a 75 basis point hike in June or July

A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies. Stocks, meanwhile, fell sharply, with the Dow Jones Industrial Average DJIA, -2.73% down more than 800 points at its session low, while the S&P 500 SPX, -2.91% slid 2.7%. Sharp stock-market selloffs can drag down other assets, particularly if investors are forced to exit winning positions to meet margin calls.

Weakness for crude, however, was relatively subdued, said Edward Moya, senior market analyst for the Americas at Oanda, in a note.

“Some traders are entering de-risking mode as prospects for the economy continue to dim, but no one really wants to abandon the best trade of the year, which is oil and energy stocks,” he said.

Oilfield services company Baker Hughes on Friday said the number of U.S. oil rigs rose by 6 this week to 580, up from 461 rigs at the same time last year.

Oil rallied this week on continued strength in fuel demand. Data earlier this week from the Energy Information Administration showed a further fall in gasoline inventories, signaling a further increase in demand as summer driving season moves into full swing despite the average U.S. pump price expected to hit $5 a gallon for the first time.

Gasoline inventories at a little over 218 million barrels “are closer to levels we usually see at the end of driving season, not at the beginning,” said Warren Patterson, head of commodities strategy at ING, in a note.

Investors continue to track developments in China, where parts of Beijing and Shanghai went back on lockdown after previously easing COVID-19 restrictions, news reports said.

The oil complex has accepted China’s “stop and start economics,” but crude dould face headwinds from a strong U.S. dollar amid continued stagflation concerns, said Stephen Innes, managing partner at SPI Asset Management.

Innes said that while continued releases from strategic reserves and an increase in OPEC+ production quotas have done little to cool off oil, bulls think U.S. policy makers could grow increasingly desperate ahead of the November elections, potentially even allowing Venezuela to export to Europe, “which could be a price capper.”

“But the clearest read-through for oil markets, regardless of what stock markets are doing, is as we head deeper into the U.S. summer driving season, tight oil and product markets should still support oil,” he said.

marketwatch.com 06 10 2022