WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the first trading day of February sharply higher, with the new front-month RBOB contract rallying to the highest settlement since January 2020. Futures were propelled by signs of progress in U.S. stimulus talks after President Joe Biden agreed to discuss a counteroffer by Republicans for a smaller fiscal package that targets lower-income households -- arguably the subset of the public hardest hit by pandemic-induced job losses.
On Monday, 10 Republican lawmakers unveiled a $618 billion coronavirus rescue proposal, which includes funding for schools, small businesses and COVID-19 testing but lowers the income cap for a new stimulus check to $40,000 a year compared with Biden's proposal of $75,000 a year. The plan also calls for extending federal unemployment benefits through June 30.
"Mr. President, we recognize your calls for unity and want to work in good faith with your Administration to meet the health, economic, and societal challenges of the COVID crisis," the senators said in a joint statement.
The group will meet with Biden and Vice President Kamala Harris at 5 p.m. EST, according to the White House schedule.
The pandemic sustained the heaviest job losses on lower- to middle-class Americans, with some economists estimating nearly 20% of those unemployed are among those previously earning less than $40,000 annually.
U.S. Department of Labor estimates the industries most affected by the pandemic are leisure and hospitality where many employees are on part-time schedules. This has direct implications for gasoline supplied to the U.S. market as millions of Americans continue to struggle with unemployment and food shortages.
After plunging nearly 50% in the March-April period, gasoline consumption has since recovered to about 10% below the 2019 levels but has yet to reach the pre-crisis mark. Even during the holiday shopping season late last year, gasoline consumption remained some 4% below last year. Therefore, Republicans' attempt to target lower-income earners in their stimulus proposal should theoretically boost gasoline consumption during the spring and summer driving season.
On the session, NYMEX RBOB March futures rallied 3.74 cents to the highest spot settlement since January 2020 at $1.5901 gallon. New front-month ULSD March futures on NYMEX added 4.85 cents or 3% to $1.6469 gallon. West Texas Intermediate futures for March delivery advanced $1.35 to settle above $53 per barrel (bbl) at $53.55 per bbl. The international crude Brent benchmark for April delivery surged $1.31 for a $56.35-per-bbl settlement. Both benchmarks advanced some 9% since the beginning of the year.
Gains in crude futures were also underpinned by tightening supplies available on the global oil market after Saudi Arabia in early January announced a voluntary production cut of 1 million barrels per day (bpd) for February and March and the Organization of the Petroleum Exporting Countries agreed to extend most of their 7.2 million bpd cuts through the end of the first quarter.
Last month, the coalition agreed to mostly leave its production ceiling unchanged at 36.728 million bpd in February, while allowing Russia and Kazakhstan to marginally increase their output by 65,000 bpd and 10,000 bpd, respectively. An expected increase in Russia's crude production, however, might not reach the international market for a while as the country has redirected some of its Ural crude from exports to local refineries amid reported fuels shortages. Bloomberg News reported Russia plans to cut its seaborne oil shipments of Ural crude from its western ports to a three-month low 1.13 million bpd in February.
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