DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Monday's session lower, although all contracts moved off intrasession lows, as the U.S. Dollar Index strengthened and equities rose on expectations that inflation pressure eased in June, while base effects of last year's lockdown over the April-May period have begun to fade and the labor market continues to underperform during the post-pandemic economic recovery.

On the session, NYMEX August West Texas Intermediates futures fell $0.46 to settle at $74.10 barrel (bbl) after hitting an intrasession low of $73.16 bbl, and the international crude benchmark Brent contract for September delivery declined $0.39 for a $75.16 bbl settlement. NYMEX August ULSD futures slipped 0.54 cents to $2.1498 gallon and front-month RBOB futures retreated 1.48 cents to finish at $2.2772 gallon.

The U.S. Dollar Index strengthened 0.15% against a basket of foreign currencies to settle at 92.256, weighing on dollar-denominated commodities by making them more expensive to users of other currencies. The greenback's strength comes ahead of Tuesday's release of the U.S. Consumer Price Index for June, with economists expecting the monthly price increase to drop to 0.5% from 0.6% in May and 0.8% in April, and for the annual rate of increase to fall below 5%.

Core inflation is forecast to increase 0.5% in June, down from 0.7% the prior month and a 0.9% jump in April. This month's expected drop in the headline inflation rate should be followed by further declines in the third and fourth quarters. Should CPI for June come above expectations, this would test Federal Reserve's assumption that the recent inflation surge is temporary and triggered by the economy's reopening rather than material and labor shortages. Last year's March and April lockdowns led to a collapse in consumer prices as consumers at the time avoided all but essential purchases. That decline in the base index reversed as the economy reopened in the third and fourth quarters of 2020 and prices resumed their advance.

Federal Reserve interest rate policy going back to March 2020 has been focused on healing the labor market and ensuring capital flows for hard-hit businesses, while allowing for inflation to run above its target of 2%. Federal Reserve Bank of Richmond President Thomas Barkin on Friday said the U.S. labor market has not healed enough for the central bank to taper its $120 billion a month bond-buying program, while calling on inflation to cool more and earlier than previously thought.

"This pandemic has at least one more chapter to go, because when we get through the current return-to-normal and supply-chain-driven surge [in inflation], there's going to be a reversion" in price pressures, Barkin said in an interview with the Wall Street Journal.

Potentially weighing on inflation is the rapidly spreading Delta variant of coronavirus that is now the dominant strain in the United States and many European countries. The Centers for Disease Control and Prevention says between June 20 and July 3, the Delta variant accounted for more than 51% of all news cases, with 24 states seeing an uptick of at least 10% in COVID infections. In California, Los Angeles County officials said they saw a 165% increase in new cases week-over-week.

In the European Union, the recent surge in infections already prompted governments to reintroduce some travel and social restrictions. Germany and France issued a warning against travel to Spain, where the coronavirus infection rate is now the highest in mainland Europe, dealing a blow to its tourism industry amid the summer travel season. The Netherlands reintroduced restrictions on contact-sensitive businesses, including restaurants, bars and live events -- only two weeks after lifting them.

This coincides with the ongoing dispute among the OPEC+ members on how to raise production next month and onward, with Saudi Arabia and United Arab Emirates reportedly unable to reach compromise on lifting the baseline for Abu Dhabi's quota. Disagreement between the two Gulf OPEC allies have entered a second week. Spokesperson for the Kremlin, Dmitry Peskov, said this morning Russian Energy Minister Alexander Novak, who is reportedly leading efforts to bring both camps to the negotiating table, has no scheduled meetings with either party.

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