U.S. oil prices settle at one-week high on post-CPI relief rally and drop in crude supplies

By Myra P. Saefong and William Watts

OPEC is expected to adopt an 'if it ain't broke, don't fix it' policy at June 1 meeting: analyst

U.S. oil prices settled at their highest in a week on Thursday, extending a relief rally sparked by data showing a slowdown in key U.S. inflation data, raising the prospects for interest-rate cuts this year that would help boost the economy and energy demand.

Crude prices found additional support from Wednesday's weekly storage data showing a drop in U.S. oil inventories, while natural-gas futures finished higher following a government report showing a slightly smaller-than-expected decline in supplies of the fuel last week.

Price moves

West Texas Intermediate crude for June delivery CL.1 CLM24 rose 60 cents, or 0.8%, to settle at $79.23 a barrel on the New York Mercantile Exchange. That was the highest front-month finish since May 9, according to Dow Jones Market Data.July Brent crude BRN00 BRNN24, the global benchmark, added 52 cents, or 0.6%, to $83.27 a barrel on ICE Futures Europe.June gasoline RBM24 climbed by 1.6% to $2.54 a gallon, while June heating oil HOM24 edged up by 0.9% to $2.44 a gallon.Natural gas for June delivery NGM24 settled at $2.50 per million British thermal units, up 3.3%.

Market drivers

A reading released Wednesday showed the U.S. consumer-price index rose less than expected in April, which "knocked the dollar down to the 200-day moving average, bolstering commodity markets across the board," StoneX's Kansas City energy team, led by Alex Hodes, said in a Thursday client note.

The core reading of the U.S. April consumer-price index, which strips out food and energy costs, slowed to 3.6% year over year from 3.8% in March, leaving investors to pencil in two interest-rate cuts by the Federal Reserve in 2024.

That helped soothe worries about the economic outlook and demand prospects.

"Financial markets now have placed the most bets on a September interest-rate cut by the Federal Reserve, which would continue to temper the dollar strength and shift that strength over to commodities and equities," the StoneX analysts said.

Crude has also found support this week from data showing that U.S. commercial crude inventories declined for a second week in a row.

The most important detail in Wednesday's Energy Information Administration's report has been gasoline supplied, the implied measure of consumer demand at the pump, analysts at Sevens Report Research wrote in Thursday's newsletter.

The data released Wednesday was bullish, as that measure rose 78,000 barrels a day to to 8.875 million bpd, which was the highest since late March, they said.

Traders were also looking ahead to the June 1 meeting and the decision on production levels by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

'OPEC is widely expected to adopt an "if it ain't broke, don't fix it" policy.' Manish Raj, Velandera Energy Partners

"OPEC is widely expected to adopt an 'if it ain't broke, don't fix it' policy," said Manish Raj, managing director at Velandera Energy Partners. "OPEC won't go on a wild-goose chase of risking [a] production increase [with] so much is at risk, so we expect current production to be maintained through [the third quarter]."

Also, with the "election frenzy to commence in the U.S., we expect more rhetoric and tough talk against rogue producers such as Iran and Venezuela, which further tightens the supply side," said Raj. "As such, the conditions are now set for oil to regain the $80s territory."

Meanwhile, natural-gas futures tacked on more than 3% Thursday after the EIA on Thursday reported an increase of 70 billion cubic feet in domestic supplies of the fuel for the week that ended May 10.

That was a bit smaller than the average increase of 76 billion cubic feet forecast by analysts polled by S&P Global Commodity Insights.

-Myra P. Saefong -William Watts

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05-16-24 1521ET

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