Oil Futures Rally on Stimulus Chatter

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange shrugged off earlier weakness to end Monday's session with solid gains amidst chatter of additional government stimulus for the U.S. economy to weather the coronavirus-induced crisis. The Trump administration reportedly is backing an infrastructure spending bill and a second one-time payment check to American households.

NYMEX July West Texas Intermediate futures expired Monday afternoon at a fresh 15-week spot high $40.46 barrel (bbl), with the incoming front-month delivery August WTI contract notching a $0.90 gain to end the session at $40.73 bbl. The U.S. crude benchmark turned decisively higher in afternoon trade after news broke that the next stimulus package is likely to include a second one-time payment check to the American consumers to further bolster retail and restaurant spending in the weeks ahead. U.S. Commerce Department data reported consumer spending jumped a staggering 17.7% in May, more than double the consensus estimate from economists. The federal stimulus funds are being reinjected directly into the economy at a time when states push to reopen following weeks of coronavirus-induced quarantine. Underlining this narrative, the Chicago Federal Reserve Monday morning reported the national activity index rose to 2.61 in May from -17.89 in April, led by improvements in all four production and employment-related indicators. The outline of the stimulus plan is likely to include an extension to the current unemployment payments of $600 a week but full details of the plan are not expected for the next few weeks.

Following these reports, NYMEX July RBOB futures reversed higher to end the session at a better than 15-week spot high $1.2913 gallon and NYMEX July ULSD futures settled marginally higher at $1.2186 gallon after advancing nearly 10% last week.

International benchmark Brent August crude contact rallied $0.89 to finish the session above $43 bbl, signaling tightening global oil supplies. Organization of the Petroleum Exporting Countries and allied partners led by Russia pledged to adhere last week to better compliance with agreed to quotas under their 9.7 million barrels per day (bpd) supply-cutting deal. OPEC+ compliance rate reached 87% in May, with two laggard members of the alliance, Nigeria and Angola, due to present their compliance plans early this week.

Oil futures started the session with weakness linked to a surging number of new coronavirus cases in the United States, Asia and western Europe that could potentially derail plans to further reopen their economies. The World Health Organization estimated the global rate of COVID-19 infections rose by 183,020 per day over the past weekend, beating the previous record. Domestically, several recently reopened states, including California, Texas, and Florida, registered their highest daily count of coronavirus cases since early May. However, the states' governments seemed to continue to reopen their economies despite an uptick in coronavirus cases.

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

Liubov Georges