Crude oil higher; helped by softening U.S. inflation data

(C) Reuters

Investing.com — Oil prices rose Friday, helped by signs that U.S. inflation is cooling, potentially opening the possibility of the Federal Reserve ending its rate-hiking cycle this year, helping economic activity in the world’s largest consumer.

By 09:15 ET (13:15 GMT), U.S. crude futures traded 1.2% higher at $70.66 a barrel, while the Brent contract rose 1% to $75.28 a barrel.

PCE data surprises on downside

Data released earlier Friday showed that the personal consumption expenditures index rose last month at a year-on-year pace of 3.8%, easing from April’s 4.4% pace.

Additionally, underlying core inflation, often regarded as the Fed’s preferred gauge of inflation, rose 4.6%, a touch less than the 4.7% economists expected.

While the Fed is still widely expected to increase its key interest rate again in July, the probability has decreased slightly and uncertainty over the need for another increase after that has grown.

“Expectations of further hikes is one of the factors which is capping the upside in the market, while on the downside, the belief that OPEC+ will take further action if there is significant further weakness provides a floor to the market,” said analysts at ING, in a note.

Another negative quarter looms

Both contracts are on course to add over 3% this June, with Brent marking its first positive month this year. But the quarter as a whole is set to be a negative one, the fourth in succession, amid concerns over sluggish global economic activity and fuel demand.

China’s factory activity declined for a third straight month in June, the official purchasing managers’ index showed on Friday, coming in at 49.0, below the 50-point mark that separates contraction and expansion.

Additionally, services sector activity for June also recorded its weakest reading since China abandoned its strict COVID curbs late last year.

The news in Europe is even worse, with the eurozone entering a recession in the first quarter of the year and growth only marginally improving in the subsequent months.

Large U.S. stocks draw lends support

Still, there has been some good news this week as the Energy Information Administration reported on Wednesday a substantially bigger-than-expected draw in U.S. crude inventories, falling by 9.6 million barrels.

This raises the prospect of tighter supplies in the massive U.S. market as the travel-heavy summer season heats up.

The week ends with the release of the CFTC position data, as well as the Baker Hughes U.S. rig count data.

“If the trend seen for the last several months holds, we will likely see a further slowdown in U.S. drilling activity,” ING added.