WASHINGTON (DTN) -- Oil futures and Brent crude drifted lower heading into midmorning trade Monday, with the front-month RBOB contract down more than 2% as inventors weighed the recent spike in coronavirus cases in the European Union and United States against a weakening U.S. dollar ahead of stimulus negotiations this week.
The U.S. dollar collapsed to a near two-year low 93.595 cents against the basket of foreign currencies, with the greenback falling over 0.82% as of 10:30 a.m. ET. A weaker U.S. currency should be supportive for the oil complex as both typically exhibit negative correlation. The greenback is currently on track for its worst one-month performance in over nine years, with spiking coronavirus cases in parts of the U.S. seen undermining recovery.
Investors are also betting that the Federal Reserve will offer a darker outlook for the U.S. economy when the board members convene for a two-day meeting that ends on Wednesday. Fed officials have already warned this month that the economy faces a deeper downturn if the country doesn't take more effective measures to slow the spread of the virus. The U.S. recorded nearly 75,000 new coronavirus cases on Friday, according to Centers for Disease Control database, with the seven-day average having more than doubled to more than 66,100 from 31,402. Florida has overtaken New York in the number of coronavirus cases, according to the latest figures from the health department in the southeastern U.S. state.
Domestic economy is now expected to contract more than 35% in the second quarter after falling 5% during the first three months of the year.
Demand for refined fuels continues to show signs of slowing, with the most recent data indicating gasoline supplied to domestic market dropped for the second week in a row, down nearly 100,000 barrels per day (bpd) to 8.550 million bpd, or 11.6% lower than a year ago. Meanwhile, distillate consumption sagged nearly 500,000 bpd or 13% to 3.223 million bpd as of July 17, 24.4% lower compared to the same last year. Other high-frequency data also point to derailed economic recovery. Data from the Federal Reserve Bank of Dallas shows social mobility and engagement has stalled around mid-June, correlating with the surge in COVID-19 cases across parts of the country.
Near 10:30 a.m. ET, NYMEX September West Texas Intermediate futures dropped 55 cents to $40.74 per barrel (bbl) and the international Brent crude contract traded down 66 cents at $42.67 bbl. NYMEX ULSD August futures traded 1.56 cents lower at $1.2407 gallon and the front-month RBOB contract slumped 2.91 cents to $1.2557 gallon.
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