DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange erased overnight gains on Monday, pressured by the surge in U.S. Treasury yields and strengthening dollar index as investors adopt a cautious approach ahead of the Federal Reserve policy meeting held Tuesday and Wednesday, while better-than-expected industrial data out of China boosted hopes for a faster recovery in global fuel demand.

China's National Bureau of Statistics reported on Sunday 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. The data for January and February were released together to eliminate the uncertainties brought by China's Lunar New Year holiday, which falls within this period.

"After removing the base effect, the growth of main indicators is stable and macro indicators are in a reasonable range," said the NBS.

China's crude imports rebounded 5.8% in the January-February period to 11.13 million barrels per day (bpd) from a 27-month low 9.1 million bpd recorded in December. The sharp increase suggests demand in the world's second largest oil consumer remains robust despite a somewhat sluggish vaccine rollout and renewed COVID restrictions in parts of the country.

Domestically, investors are laser-like focused on this year's first economic projections from the Federal Reserve Market Open Committee to be released Wednesday, with Fed Chairman Jerome Powell to hold a press conference Wednesday afternoon following the central bank's monetary policy statement.

CME Fed's Watch Tool shows investors peg a 100% probability the central bank will keep its targeted federal funds rate unchanged between 0% and 25%. Markets also expect FOMC officials to upgrade their economic forecasts for the rest of 2021 given U.S. economy's strong fundamentals and additional $1.9 trillion stimulus measures signed into law by U.S. President Joe Biden on March 11.

The December Summery of Economic Projections indicated that Fed members expected improvement across all variables from 2020 to 2021. Specifically, members projected 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.

The GDPNow model published by Atlanta's Federal Reserve estimate for real GDP growth in the first quarter jumped to 8.4% on March 8, up from 8.3% on March 5.

High-frequency economic indicators suggest the economy has indeed picked up speed over the past week, with unemployment claims falling to the lowest since the start of the pandemic at 712,000, paving the way for a spring hiring bounce back, and traffic activity surged 5% above of January 2020 baseline, the highest since the week ended Oct. 30, and roughly on par with year-ago levels. Government data showed gasoline consumption in the United States climbed to a four-month high 8.726 million bpd as of March 5th, while distillate demand is now above a year ago at 4.487 million bpd.

Near 7:30 a.m. ET, West Texas Intermediate for April delivery slipped 11 cents to trade near $65.50 per barrel (bbl) and Brent May crude traded little changed near $69 bbl. NYMEX April ULSD futures fell 1.45 cents to $1.9524 gallon and April RBOB futures slipped 0.45 cent to a $2.14 gallon, edging off a $2.1599 31-month high on the spot continuation chart.

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