Oil prices rose in European trade on Thursday for a second session, almost hitting five-week highs as dollar weakens against major rivals.

Such gains come after a surprise tumble in US crude inventories according to official EIA data, which overshadowed the increase US crude output to three-year highs. 

Global Oil Prices

US crude rose 1.1% to $73.24 a barrel, while Brent added 1.3% to $77.64 a barrel, with a session-low at $76.48. 

US crude rose 1.4% on Wednesday, resuming gains after a hiatus on profit-taking off five-week highs at $74.92 a barrel, while Brent climbed 0.8%, after losing 0.6% in the previous reading on profit-taking off May 2 high at $78.68.

The Dollar

The dollar index fell 0.3% on Thursday for a second session against a basket of major rivals, underpinning dollar-denominated commodities.

Recent weak US services data bolstered the case for no change in the Fed's monetary policies next week. 

US Stocks

The Energy Information Administration reported a drawdown of 0.5 million barrels in the week ending June 2, the second weekly decline in three weeks, while analysts expected a build of 1.2 million barrels.

US Production

The EIA reported a buildup of 200 thousand bpd last week in US crude production to a total of 12.4 million bpd, the highest since April 2020.

Deficit Concerns

Some analysts are sounding alarm bells over a potential huge deficit in crude supplies as Saudi production cuts deepen a 3 million bpd deficit in crude supplies during July according to some estimates. 

Dollar fell in European trade on Thursday for a second session away from eleven-week highs as  haven demand on the greenback slowed down markedly.

Markets are now betting the Federal Reserve will pause policy tightening next week, with investors awaiting US unemployment clams data today to better gauge the path ahead.

The Index

The dollar index fell 0.25% to 103.80, with a session-high at 104.07, after losing 0.1% yesterday, the second loss in three days on profit-taking off 11-week high at 104.69.

US Rates

As wages slow down and unemployment increases and services weaken, the Federal Reserve is likely to stop policy tightening at the June 13-14 meeting. 

Most economists polled by Reuters believe the Fed won't raise interest rates for the first time in over a year at its next meeting.

Now investors await upcoming data later today on the US labor sector , specifically unemployment claims to better gauge the path ahead for the US economy.

US unemployment claims are expected at 236 thousand in the week ending June 3, up from 232 thousand in the previous reading. 

Gold prices rose in European trade, resuming gains as the dollar slowed down against major rivals.

Gold is mostly trading sideways ahead of the crucial US consumer prices data, and the Federal Reserve's policy decisions next week. 

Gold Prices Today

Gold prices rose over 0.4% to $1,948 an ounce, with a session-low at $1,939, after losing 1.2% yesterday, the first loss in three days as US 10-year treasury yields spiked. 

Bank of Canada also surprised markets with  0.25% rate hike to interest rates to 4.75%, the highest in 22 years. 

The Dollar

The dollar index fell 0.2% on Thursday for another session against a basket of major rivals, underpinning dollar-denominated gold futures. 

Such decline came after weak US services data, which triggered concerns about the health of the US economy in the second quarter of the year, and boosted chances of no change in interest rates at the Federal Reserve's policy meeting next week. 

US Rates

Current pricing for a 0.25% rate hike at the Fed's June meeting stands at 30%. 

Most economists polled by Reuters believe the Fed won't raise interest rates for the first time in over a year at its next meeting.

Data

Now investors await upcoming data later today on the US labor sector , specifically unemployment claims to better gauge the path ahead for the US economy. 

Estimates

Citibank cut down its price forecasts for gold prices from $2,100 to $1,915 in the next three months, while noting that fresh tailwind in support of gold futures will appear before the end of 2023. 

Citibank believes gold prices remain a solid safe haven for small investment funds and wallets even as the Federal Reserve continues to tighten policies.

The SPDR

Gold holdings at the SPDR Gold Trust fell 3.46 tones yesterday, the second such decline in a row, to a total of 934.65 tones, the lowest since May 15. 

Euro rose in European trade for the second session against dollar away from recent two-month lows, amid prospects for additional European rate hikes.

Such prospects are based on bullish remarks by ECB officials following surprise increases by Reserve Bank of Australia, and Bank of Canada. 

EUR/USD rose 0.2% to 1.0717, with a session-low at 1.0692, after rising 0.1% on Wednesday, the second profit in three days away from two-month lows at 1.0635. 

European Remarks

European Central Bank President Christine Lagarde said ahead of European Parliament in Brussels that inflationary pressures in the euro zone remains strong, and future decisions on interest rates must be based on bringing inflation back to 2%. 

European Central Bank member Gabriel Makhlof said European interest rates are likely to be high for an extended duration before reaching its peak. 

Global Central Banks

Both the Reserve Bank of Australia and Bank of Canada raised interest rates by 25 basis points, which were unexpected moves.

European Rates

Such recent bullish remarks and sudden moves by global banks indicate a likely decision by the ECB to raise interest rates for a longer duration.

Markets are now fully pricing in a 0.25% rate hike at next week's meeting by the European Central Banks, and there's a likelihood for an additional 0.25% rate hike in July. 

Price Gap

The current gap in interest rates between Europe and the US stands at 150 basis points and could shrink to 125 basis points next week.