DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude on the Intercontinental Exchange accelerated losses in market-on-close trade Tuesday. The step lower in price was exacerbated by the expiration of the March West Texas Intermediate (WTI) contract as lingering concerns over Chinese and U.S. economic growth outweighed geopolitical tensions in the Middle East that risk disrupting oil flows through the Red Sea transit corridor.

NYMEX March WTI contract expired $1.01 a barrel (bbl) lower this afternoon at $78.18 bbl after touching a 14-week high of $79.80 bbl on the spot continuous chart in early trading. The new front-month April WTI futures contract narrowed its discount against the expired contract to $1.14 bbl on the session with WTI in a backwardated market structure. ICE April Brent futures fell a steeper $1.22 to settle at $82.34 bbl. NYMEX March RBOB futures declined $0.0586 gallon to settle the session at $2.2774 gallon, while NYMEX March ULSD futures dropped back $0.0751 to $2.7315 gallon.

The oil complex kicked off the holiday-shortened week with a modest selloff as traders parsed through conflicting demand figures out of major global economies. In China, the Lunar New Year holidays saw a large spike in domestic travel and spending that exceeded its pre-pandemic trend for the first time since 2020. Some 474 million trips were made in China during the Lunar New Year festival Feb. 10-17. That's up 19% from the comparable period in 2019, according to data from the Ministry of Culture and Tourism. The fresh data might signal a rebound in Chinese fuel consumption for this year. Meanwhile, China's central bank announced on Tuesday that it would cut its five-year loan prime rate in a bid to revive a challenged property sector that has so far weighed heavily on the growth outlook.

Domestically, investors continued to digest mixed macroeconomic data for January, showing inflation unexpectedly accelerated on both consumer and producer levels as retail sales dropped sharply. U.S. retail sales fell a seasonally adjusted 0.8% in January from a month earlier following a strong rebound during holiday shopping in December, which was revised to a 0.4% gain. Although January could often be a volatile month for consumer spending due to seasonal adjustments, the new data raises the possibility that consumer spending in the U.S. has not been as strong as many have suggested.

As of Tuesday afternoon, most investors still expect the Federal Open Market Committee to make a 25-point cut in the federal funds rate at its June meeting, pushing back expectations for an earlier cut in the overnight bank borrowing rate. The U.S. dollar, however, continued lower into the new trading week after testing a three-month high 104.875 on Feb. 14. The U.S. dollar index weakened 0.2% against a basket of foreign currencies with a 103.978 settlement.

On the geopolitical front, the Iran-backed Houthis militia over the weekend carried out a series of drone and missile strikes on commercial vessels passing through the Bab al-Mandab Strait, including an attack on an oil tanker carrying Russian crude to India. The tanker Pollux departed the Black Sea port of Novorossiysk on Jan. 24 and was scheduled to unload Urals grade crude at the Indian port of Pradip on Feb. 28. According to U.K. Maritime Trade Operations, the vessel was able to divert an attack and continued its route to eastern India but stopped transmitting a signal likely due to heightened safety risk.

This marked the second attack by the Houthis on a Russian oil tanker in the Red Sea transit corridor three weeks after the first incident took place on Jan. 12. So far, there have been no signs of Russia rerouting oil cargoes heading to Asia around the Cape of Good Hope, which would have increased the transit time by weeks and sharply raise costs for Indian and Chinese refineries. According to tanker-tracking data compiled by Bloomberg, eight out of 10 tankers passing through Bab El-Mandeb Strait carry Russian oil. Continued attacks might change the risk profile of the Red Sea transit corridor and force broader divergence for companies to ship around Africa, pushing energy costs higher and stoking inflation.

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