DTN Oil

WASHINGTON (DTN) -- In early trade Thursday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed lower following overnight strength in the U.S. dollar and softness in global financial markets, as traders monitor signs of progress in the final round of multilateral talks in Vienna, aimed at returning Tehran into compliance with the 2015 nuclear accord that would unleash more Iranian crude barrels onto the global oil market.

U.S. Dollar Index traded near a one-week high 90.180 level overnight following sharp gains Wednesday before weakening ahead of the release of weekly unemployment claims, the second reading on U.S. first quarter gross domestic product, and durable goods orders for April, with all data points expected to show an improving economy.

Consensus calls for first-time jobless claims to fall slightly from the previous week to around 450,000, continuing a downtrend for a fifth week. The second reading on first quarter U.S. GDP is seen improving 0.1% from the initial estimate to 6.5% annualized growth, although consensus ranges from 6.5% to 7%. The Atlanta Fed's GDPNow tracker suggests second quarter growth rate of around 10.1%, firmly ahead of the 6.4% pace recorded over the first three months of the year and one of the fastest rates of expansion on record.

The greenback might have also found support this week from emerging views that the Federal Reserve is slowly but surely edging towards a discussion about tapering the central bank's $120 billion a month in bond purchases. During his speech at the Brookings Institute on Wednesday, Federal Reserve Vice Chairman Randal Quarles noted that medium term inflation risks are "weighted to the upside" on the back of the easy monetary policy from the central bank. Although "we need to remain patient" in any policy shift, Quarles said, "if my expectations about economic growth, employment and inflation over the coming months are borne out ... and especially if they come in strong ... it will become important for the [Federal Open Market Committee] to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings."

Oil futures downside reversal follows Wednesday's bullish inventory report showing domestic crude and refined products stocks declined more than expected last week as demand for gasoline surged to the highest weekly rate since the beginning of the pandemic in March 2020. Gasoline supplied to the U.S. market, a measure for demand, held above 9 million bpd for the second consecutive week heading into the Memorial Day holiday weekend.

Seasonally, gasoline consumption rises beginning around Memorial Day -- which falls on Monday this year -- when people take to the roads, with early indicators pointing to strong demand for this holiday weekend. Apple mobility data indicate traffic activity now stands 40% above the Jan. 13, 2020 baseline -- a fresh post-pandemic high.

Thursday's softer session is once again underpinned by ongoing negotiations around Iran's nuclear program in Vienna this week, where multiple parties to the collapsed 2015 agreement indicated "significant progress" has been made. Iranian President Hassan Rouhani said last week that the United States agreed to lift all sanctions targeting Iran's oil exports, petrochemical and shipping industry.

Russia's Deputy Minister Alexander Novak suggested Wednesday that Organization of the Petroleum Exporting Counties together with allies must consider the potential return of Iranian barrels on the global market when the group meets on May 31 and June 1.

In early trading, NYMEX July West Texas Intermediate declined 68 cents to $65.54 per barrel (bbl) and the front-month Brent contact on ICE fell 70 cents to trade just above $68 bbl ahead the July contract's expiration Friday afternoon. ICE August Brent traded at a 16 cents discount to the expiring contact. NYMEX RBOB June futures dropped back 2.83 cents or 1.3% to near $2.1218 gallon, with the next month's contract expanding its premium to 0.49 cent. The NYMEX ULSD June contract was down 2 cents to $2.0252 gallon and the next-month ULSD futures traded near $2.0234.

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