Oil in 2nd weekly gain after some profit-taking on heady consumer data

Investing.com -- A strong consumer sentiment report — not one that would make the Fed particularly happy — gave the longs in oil an excuse to take some profit Friday on a market that’s run up more than many expected, with a second week of gains.

New York-based West Texas Intermediate, or WTI, crude settled down $1.47, or 1.9%, at $75.42 per barrel, posting its first daily loss since the week began.

On a weekly basis, the U.S. crude benchmark was up about 2%, extending last week’s 4.6% rally and the prior week’s run-up of 2.1%.

London-based Brent settled down $1.49, or 1.8%, at $79.87, also booking for its first lower close this week after Thursday’s three-month high of $81.42.

For the week, Brent was also up about 2% after last week’s 4.8% rally and the prior week’s 1.4% gain.

“Oil is trading relatively flat today but has made tremendous gains over the last couple of weeks and could still add to that over the coming sessions,” said Craig Erlam, analyst at online trading platform OANDA, noting that prices were up 13% from June 28 lows and may have more to rise.

But while the rally was a victory for the Saudis and their oil producing allies in the OPEC+ to break beyond $80 a barrel, Erlam cautioned that Brent could face serious resistance at $83-$84, if it continued rising. “A move lower will draw attention back to $80,” he added.

Oil looking good on many fronts, except demand itself

The July run-up in oil has been fired by various supportive factors, including Saudi and Russian rhetoric about production cuts -- an additional one million barrels per day each for the kingdom and half a million a day pledged by Moscow.

There has also been receding inflation data this week that suggested the Federal Reserve will be less aggressive with interest rates going forth. That drove the dollar to 15-month lows, making dollar-denominated oil more attractive to buyers using other currencies.

Notwithstanding those, demand for oil in the United States itself has been kind of lackluster of late, with domestic crude balances  rising their most in a month last week.

Also, a closely-watched survey on U.S. consumer sentiment by the University of Michigan has shown the spending appetite of Americans at its highest in two years, a development economists said wouldn't be too encouraging for the Fed, which wishes to see a greater retreat in inflation.

“The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” Joanne Hsu, Surveys of Consumers Director at UMich, said in a statement. 

That underscores what could be one of the Fed’s bigger concerns — consumers thinking inflation is ebbing starting to spend big again.

Inflation, as measured by the Consumer Price Index, or CPI, hit a four-decade high of 9.1% per annum in June 2022 in the aftermath of the coronavirus pandemic and the trillions of dollars of relief spending for that.

The Fed responded by raising interest rates aggressively, adding a total of 5% in 10 installments to the prior rate of 0.25%. 

Inflation subsequently eased, falling to as low as 3% in the CPI reading for July.  But that is still well above the Fed’s long-term target of 2%, with officials at the central bank saying they feared renewed spikes.

The Fed is supposed to decide again on rates on July 26, with economists saying there was a high probability of the central bank adding another quarter point to rates.