Oil Futures Rally on Inflation Bets

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

WASHINGTON (DTN) -- With equities on Wall Street resetting record highs and the U.S. dollar slumping lower, oil futures nearest delivery on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange remained on the offensive for the sixth straight session Monday as investors readjusted positions amid rising inflationary pressures in the U.S. economy after Treasury Secretary Janet Yellen endorsed President Joe Biden's plan for a massive $1.9 trillion spending bill to bolster economic growth at the expense of escalating prices.

On the session, March West Texas Intermediate futures added more than $1 to settle just below $58 per barrel (bbl) at $57.97 -- the highest settlement price on the spot continuous chart since mid-January 2020, while prompt-month Brent finished above $60 per bbl for the first time since waves of coronavirus infections spread across the world in early 2020. March ULSD futures were up 3.41 cents, or 2%, to a one-year spot high settlement of $1.7478 per gallon, and March RBOB futures rallied 2.55 cents for a $1.6748-per-gallon settlement.

The Dow Jones Industrial Average gained 125 points, or 0.4%, to 31,273, and the S&P 500 was up 0.33%, while the Nasdaq rose 0.5%. All major indexes reset record highs on Monday, extending their longest winning streak since at least August into a new week.

U.S. dollar remained under pressure at the beginning of the week to finish just below the 91-level at 90.919. The greenback suffered steep losses in index trade Friday after the U.S. Department of Labor, in their nonfarm employment report, showed a weak 49,000 new jobs were created in January while revising lower the number of jobs created in the previous two months by 159,000. The unemployment rate fell but remained stubbornly above 6% despite falling unemployment claims from the previous three weeks, with the decline due to some individuals ending their job search.

Yellen told CBS this weekend full employment could return by 2022 if Biden's proposed $1.9 trillion plan was passed into law.

"We face a huge economic challenge here and tremendous suffering in the country. We have got to address that," Yellen added. "That's the biggest risk." When asked about concerns over rising inflation, Yellen said, "We have the tools to deal with" such a threat.

Not everyone agrees. Some Republican lawmakers have been increasingly critical of the massive spending bill and its potential to raise inflation in the second half of the year above the Federal Reserve's 2% target. Some argue the economy has been healing on its own from a pandemic-induced recession, with unemployment claims falling, manufacturers reaching pre-pandemic growth while monetary policy is far looser than at any point in the previous decade. Additionally, there is likely to be further strengthening of demand as consumers spend down their stimulus checks accumulated last year as the pandemic curtailed the ability to engage in a larger economy.

Oil prices and inflation levels are often seen as tightly interconnected in a cause-and-effect relationship. As inflation moves up, oil prices typically follow in the same direction. On the other hand, as the price of oil falls, inflationary pressures ease.

The next key reading on the U.S. inflation levels comes Wednesday, with the Bureau of Labor Statistic's consumer price index for January out at 8:30 a.m. EST. Market consensus calls for a mostly unchanged reading of a 0.3% monthly increase after prices rose 0.4% in December.

Annual rates are expected to rise 0.1% overall to 1.5% and hold unchanged at 1.6% for the core.

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

Brian Milne