DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange settled Monday's session lower, as investors assessed the impact of rising U.S. treasury yields on the value of the U.S. dollar as the economy is positioned for swift state re-openings in the second and third quarters, expedited by the $1.9 trillion spending bill signed into law on March 11 joined by an acceleration in the vaccination rate.

On the session, West Texas Intermediate for April delivery shed 22 cents to settle at $65.39 barrel (bbl) before trading as low as $64.13 bbl and Brent May crude on ICE declined below $69 bbl at $68.88. NYMEX April ULSD futures fell 1.86 cents for a $1.9489 gallon settlement and April RBOB futures plunged 4.54 cents or 2% to a $2.1046 gallon, fading from a $2.1599 31-month high on the spot continuation chart.

Yields on 10-year treasuries climbed to a one-year high 1.64% on Monday after rising for seven consecutive weeks from below 1% at the start of the year, reflecting expectations for a stronger U.S. economy accompanied with concerns over rising inflation. Monday's price move in U.S. treasuries helped bolster the greenback, which has been taking clues recently from stronger bond yields. Buying U.S. treasuries requires U.S. currency, therefore as yields go higher so does the dollar. It also may suggest that, at least for now, most currency investors are not expecting runway and persistent inflation -- a message conveyed by the U.S. Federal Reserve.

Federal Reserve Open Market Committee (FOMC) will update the markets on their latest forecast for inflation and economic growth on Wednesday with the release of Economic Projections. The quarterly release by the central bank in December indicated Fed officials expected improvement across all variables from 2020 to 2021. Specifically, the central bank saw a 4.2% increase in gross domestic product for 2021 compared to the 2.4% decline for 2020. Fed members also projected a 5% unemployment rate for this year, down from 6.7% at the end of 2020.

Since then, the U.S. Congress has passed two spending bills, totaling a whopping $2.82 trillion in outflow from the U.S. Treasury into consumer wallets. Forecasters indicate the FOMC is likely to upgrade 2021 GDP growth to between 6% and 8% this year.

In contrast, China is now moving to unwind its stimulus measures and tighten credit in parts of the economy as manufacturing and retailers mostly recovered to pre-pandemic levels in the fourth quarter 2020. China's National Bureau of Statistics reported industrial production in the world's second largest economy spiked 35.1% in the first two months of 2021, the biggest bounce in decades, while retail sales also beat expectations with 33.8% growth. Despite efforts to limit borrowing, Beijing still targets 6% annual GDP growth this year.

Liubov Georges can be reached at liubov.georges@dtn.com