DTN Oil

WASHINGTON (DTN) -- With the U.S. dollar trading near a 20-year high, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended Monday's losses into early trading Tuesday as investors rethink economic growth prospects in the United States amid the worst inflation in 40 years and an aggressive rate hike path laid out by the U.S. Federal Reserve that has raised doubts the central bank can avert recession in the world's largest economy.

In the world's No. 2 economy, China's growth outlook decelerated sharply in April under pressure from unprecedented lockdown measures slapped on the country's major cities of Beijing and Shanghai. Chinese car sales plummeted 35.7% last month -- the biggest decline in over two years, while use of public transport declined 22% from a week earlier across 11 large cities in the clearest sign yet of deteriorating mobility.

Further evidence of economic turmoil can be found in China's home sales data that collapsed by more than 50% compared to a year earlier, according to the government data released this week. Moving forward, China's Communist Party shows no signs of abandoning their brutal tactics of combating COVID-19 resurgence that is clearly taking the country backwards.

Chinese President Xi Jinping recently urged officials to "unswervingly adhere to the general policy of dynamic zero-Covid," and warned against any criticism or doubting of the policy.

Authorities just expanded the criteria for close contacts in Shanghai, with people living in the same building with a positive COVID case are at risk of being removed to government-run isolation facilities.

According to various estimates, demand for gasoline, diesel and aviation fuel in China slid 20% last month, accounting for a 1.4 million bbl decline in daily consumption. It marked the largest hit to demand since the lockdown of Wuhan -- the epicenter of COVID-19 pandemic more than two years ago.

Faced with flagging demand in China, Saudi Aramco, the world largest oil producer, slashed its official selling prices for Asian buyers between $4.95 per barrel (bbl) and $5.10 bbl from all-time highs set for May deliveries.

In the United States, equity futures on Wall Street bounced higher on Tuesday after a three-day selloff that sent S&P 500 to its lowest level since March of last year. On Monday, Dow Jones Industrials plunged more than 650 points to 32,245 and S&P 500 Index declined 132 points or 3.2%. U.S. dollar index, meanwhile, was little changed in trading against a basket of foreign currencies after reaching a 104.210 20-year high Monday, as investors flee to the safety of the U.S. currency and treasury bonds.

The volatility in the markets was triggered, in part, by comments from Atlanta Federal Reserve Chairman Rafael Bostic who suggested that two or even three 50-basis point increases in the federal funds rate are needed this year to quell inflation. Bostic ruled out for now the likelihood of a 75-basis point increase, saying it is "not on the table yet."

Last week, U.S. Federal Reserve raised interest rates by 50-basis points, which was the largest increase during a single meeting in 22 years. The decision was unanimous among all 12 members of the policy-setting Federal Open Market Committee.

Near 7:30 a.m. ET, NYMEX June West Texas Intermediate dropped $1.50 to trade at $101.70 bbl, and Brent crude fell below $105 bbl, down $1.58. NYMEX June RBOB futures retreated further from an all-time high settlement $3.7590 gallon reached on Friday, down 5.12 cents Tuesday morning to $3.5907 gallon, and the front-month ULSD contract declined 1.22 cents to $3.8227 gallon.

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