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 mostly higher, supported by a sharp drop in the U.S. Dollar Index and near record-high equity valuations as traders positioned ahead of what could be a pivotal meeting by the Federal Open Market Committee, scheduled for Tuesday and Wednesday. Expectations are for the U.S. central bank to continue with accommodative monetary policy despite signs of slowing economic growth and rising inflation.

NYMEX September West Texas Intermediate futures finished Monday's session with a modest $0.16 dip to $71.91 barrel (bbl), and the international crude benchmark Brent contract for September delivery gained $0.40 for a $74.50 bbl settlement. NYMEX August RBOB contract advanced 1.70 cents to $2.3083 gallon and August ULSD futures added 1.71 cents to settle at $2.1510 gallon.

Stocks on Wall Street hovered near record highs and U.S. Dollar Index fell sharply against a basket of foreign currencies to finish near the 92.60 level as traders shifted their focus to the two-day policy meeting by Fed officials. A new policy statement is to be issued 2 p.m. EDT Wednesday, followed by a 2:30 p.m. EDT news conference by Federal Reserve Chairman Jerome Powell.

According to CME's FedWatch Tool, investors assign 100% probability that the U.S. central bank will leave its key benchmark interest rate unchanged at the current target range of 0%-0.25% this week. Fed officials are also expected to signal an eventual policy shift towards slowing the pace of $120 billion a month in bond purchases -- a measure rolled out last year to buttress the economy from the pandemic. Some Fed officials signaled it is time to pivot from those policies because of the unexpected pace of recent price increases.

The consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department. Excluding the volatile food and energy components, core CPI rose 4.5% from June 2020, the largest advance since November 1991. On the other hand, rising COVID-19 infections led by a more contagious Delta variant of the coronavirus will likely slow the pace of the post-pandemic recovery, while strengthening the case against pulling back on quantitative easing prematurely. New home sales data released Monday by the Commerce Department show a sharp drop from the previous month, down 6.6% to a seasonally adjusted annual rate of 676,000 units. Meanwhile, U.S. consumer confidence nosedived to a five-month low in July, weighed down by rising inflation and incomplete recovery in the labor market. The U.S. economy still misses around 6.8 million jobs it had pre-pandemic, while unemployment claims are once again trending higher.

Internationally, heavy flooding and typhoons in China forced a shutdown of all above-ground traffic and electricity supplies across the country's major metropolitan areas, including Shanghai and Shenzhen. According to China's National Meteorological Center, eastern China will be continually affected by heavy winds and torrential rains over the next couple of days. Several airports in China have suspended all flights over the weekend, with hundreds of additional flights grounded Monday. Rising COVID-19 infections across Asia and the western Pacific prompted renewed restrictions on travel and business, deepening concern over deteriorating fundamentals for global oil demand. Thailand and Malaysia both reported a record number of new infections Friday, while Indonesia registered its highest single-day increase in COVID-related deaths. New Zealand announced last week that it was suspending a travel bubble with pandemic-hit Australia until the health crisis there is resolved.

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