DTN Oil

WASHINGTON (DTN) -- Following Monday's selloff triggered by concerns over China's economic growth and prospects for the U.S. Federal Reserve to taper pandemic-era monetary stimulus, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in overnight trade as investors turned their attention to an improved outlook for global oil demand in the fourth quarter after the United States lifted travel restrictions on fully vaccinated foreign travelers from 33 countries, boosting the prospect for increased international air travel and global jet fuel demand.

Near 7:30 a.m. ET, NYMEX October West Texas Intermediate futures advanced $0.73 to trade just above $71 per barrel (bbl) ahead of the contract's expiration this afternoon, and next-month delivery November WTI traded at a $0.15 discount. Brent crude for November delivery added $0.68 to $74.60 bbl. NYMEX October ULSD futures surged 2.34 cents to $2.1824 gallon, and front-month RBOB futures gained 1.12 cents to $2.1264 gallon.

The White House announced on Monday it would ease travel restrictions on all noncitizens visiting the U.S. willing to show proof of vaccination and/or a negative COVID-19 test within three days of departure. The changes will take effect in early November, which analysts believe would spur holiday bookings this year. Biden Administration has been reluctant to reopen U.S. airspace for noncitizen travels despite United Kingdom and European officials having lifted entry bans for U.S. and other visitors since vaccines became widely available this spring.

Monday's announcement came after the peak summer travel season boosted domestic gasoline demand but a recovery in jet fuel consumption has long been elusive absent international travel. Average jet fuel consumption in August was more than 1.5 million barrels per day (bpd), nearly 400,000 bpd higher than in March, while still well still below pre-pandemic levels of 1.8 million bpd in August 2019, according to the U.S. Energy Information Administration.

Airlines have been using some of their biggest planes, normally reserved for international trips, for domestic routes, a trend that is now expected to change if demand from abroad rises with the new rules. Allowing more international travelers into the U.S. would also have a wide-ranging affect for domestic leisure, retail, and travel industries.

Also, on Tuesday market participants will monitor the beginning of a two-day policy meeting among Federal Open Market Committee members who are expected to outline the timetable for tapering $120 billion a month in bond and mortgage-backed securities purchases on Wednesday while also updating their projections on inflation, labor market and economic growth.

Although the rise in consumer prices moderated in recent months, the progress in the labor market should prompt U.S. central bank to start tapering its bound purchasing program as early as November, according to analysts. Fed Chairman Jerome Powell said in a recent speech during the Jackson Hole, Wyoming, forum that he believed "if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. I think it's clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment."

Separately, China Evergrande Group Chairman Hui Ka Yuan said Monday the indebted property developer would "walk out of its darkest moment, resume full-scale constructions as soon as possible," spurring hope Beijing officials would offer the company deemed "too big to fail" bailout cash. With real estate accounting for 15% to 20% of China's gross domestic product, an Evergrande bankruptcy could lead to ripple effects through the Chinese and Asian economies and globally.

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