Oil Futures Sink as US Dollar Jumps

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby-delivery-month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange followed equity markets lower in afternoon trade Monday. The losses came as the U.S. dollar rallied to a two-month high and sentiment soured amid rising cases of coronavirus infections in some major global economies, triggering speculation over renewed quarantine measures and restrictions on personal mobility.

On the session, NYMEX October West Texas Intermediate dropped $1.80, or more than 4%, settling at $39.31 per barrel (bbl) ahead of expiration Tuesday afternoon, with the November contract holding a modest 23-cent premium. ICE November Brent futures shed $1.71 to finish below $42 per bbl at $41.44 bbl. NYMEX October ULSD futures declined more than 5 cents to $1.1073 gallon and front-month RBOB futures plummeted 5.95 cents for a $1.1771 gallon settlement.

Oil and equities tumbled on Monday in concert with a stronger U.S. dollar which rallied to 93.815 before ending the session at 93.684, the highest settlement since late July following reports of money laundering schemes in several major global banks, including JP Morgan and Deutsche Bank. Dow Jones Industrials fell 670 points and S&P 500 flirted with correction territory on Monday as investors exited riskier assets.

The market's volatile moves also came ahead of three days of congressional testimony by Federal Reserve Chair Jerome Powell from Tuesday through Thursday. Fed's Chief will address questions on the central bank's response to the COVID-19 pandemic, economic and policy outlook, and fiscal stimulus.

Earlier this month, the Federal Open Market Committee upgraded their 2020 economic projections, forecasting gross domestic production to contract at a softer pace of 3.7% against a 6.5% contraction expected in June.

Aside from volatility in financial markets, Monday's selloff was also fueled by the potential return of Libyan crude supplies to the international market following a deal between the National Oil Corporation and General Khalifa Haftar paramilitary forces to allow for some crude oil exports to resume from the nation's battered ports.

It appears a deal made will allow the country's oil production to reach 220,000 barrels per day (bpd) from the current 106,000 bpd, according to Bloomberg. Reports say that a tanker is heading to Libya's Marsa el Hariga terminal as NOC announces partial force majeure lifting -- ship tracking.

The potential return of crude exports from Libya fed into fears of a building supply overhang in the global market under pressure from the coronavirus pandemic.

The United Kingdom, Spain and France are imposing more coronavirus restrictions this week, offsetting the recent gains in improved mobility across major European cities.

Spain announced Friday a partial lockdown of its central region, which includes its capital Madrid, and health authorities in the United Kingdom reported to have considered some restrictions on mobility in London and Dublin as early as this week.

This week's macroeconomic data out of Europe will likely further lift the U.S. dollar should it show the greater extent of economic damage caused the recent rise of COVID-19 infections.

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

Liubov Georges