DTN Oil

CRANBURY, N.J. (DTN) -- Helicopter money and robust retail sales in the United States powered New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange to strong gains Tuesday. The ULSD contract traded at its highest point since March 13 at $1.1959 gallon before trimming the advance, with supportive comments from Federal Reserve Chairman Jerome Powell joined by discussions at the White House of additional stimulus of as much as $1 trillion.

Oil futures have mostly recaptured losses caused by the government shutdown in mid-March, as stimulus payments from the U.S. Treasury joined unprecedented monetary policy by the Federal Reserve, with Powell telling a U.S. Senate committee Tuesday that the central bank has taken "broad and forceful actions to support the flow of credit in the economy."

"Since March, we have been purchasing sizable quantities of Treasury securities and agency mortgage-backed securities in order to support the smooth functioning of these markets, which are vital to the flow of credit in the economy," Powell said in testimony before the U.S. Senate's Committee on Banking, Housing and Urban Affairs Tuesday morning.

Monday afternoon, the Fed announced it would buy U.S. corporate bonds.

Elsewhere in Washington, discussions are reportedly underway by the White House for stimulus of as much as $1 trillion, with some of the funds seen pushed into infrastructure projects that would follow the $1.2 trillion that flowed into the U.S. economy earlier this quarter to cushion job losses caused by the government forced lockdown. Discussions are in the early stage, with nothing expected until July, while Congress has not weighed in yet.

The stimulus money already issued appears to have hit its target, with the U.S. Census Bureau reporting a 17.7% spike in retail sales in the United States in May, 10.2% above expectations, and the largest monthly gain on record. The question is whether the strong reading will remain robust following pent-up demand amid the lockdown.

Investors remained enthralled with the idea of even more money sloshing around the market, ignoring an escalation in hostilities between China and India along their border in the Himalayas, with India reporting 20 soldiers were killed in a clash between the two countries. Earlier Tuesday, news emerged U.S. Secretary of State Mike Pompeo will meet with a Chinese delegation reportedly headed by Yang Jiechi, a state councilor and politburo member of the Communist party at the Hickam Air Force base in Hawaii Wednesday to discuss several major topics, including North Korea and Hong Kong. News is circulating of a brain drain in the city as China violates the "one country, two systems" policy Beijing agreed to in 1997 by imposing mainland law on the city.

The International Energy Agency expects global oil supply to fall by a steep 7.2 million barrels per day (bpd) in 2020 amid production cuts agreed to by OPEC+ after world oil supply dropped 11.8 million bpd in May, with production cuts by OPEC+ joined by large reductions in oil output in Canada and the United States. In its Oil Market Report released Tuesday morning, IEA also projected oil demand to decline by a record 8.1 million bpd year-on-year in 2020 before recovering by 5.7 million bpd in 2021, with air passenger demand seen remaining depressed because of COVID-19.

"The industry will continue to be a drag on oil demand through 2021, with our first estimate showing that, having fallen by 3 million bpd in 2020, jet/kerosene demand will rebound by only 1 million bpd in 2021, leaving it below the pre-crisis level," said IEA.

NYMEX July West Texas Intermediate futures settled $1.26 higher at $38.38 per barrel (bbl), with the ICE August Brent contract gaining $1.24 to $40.96 per bbl. ICE July RBOB futures rallied $0.0416 to a $1.2073-per-gallon settlement, with July ULSD futures ending up $0.0452 at $1.1822 per gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

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