WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange accelerated selling in market-on-close trade Friday, sending the April West Texas Intermediate contract below $62 amid a sharply stronger U.S. dollar and risk-off sentiment in equity markets triggered by concerns over rising inflation and the potential for an overheated U.S. economy as House Democrats inch closer toward passing President Joe Biden's $1.9 trillion stimulus plan.
The pullback could be a sign of slight bullish exhaustion in the market propelled by positive vaccine news and better-than-expected macroeconomic data this month. Domestically, consumer spending and the labor market continued to show signs of improvement, with unemployment claims falling to multi-month lows and retail sales rebounded after muted growth in the final months of 2020.
Americans feel more confident the country is turning the corner in the pandemic after the infection rate fell more than 70% this month from its peak just two months ago. Health authorities, meanwhile, scaled up vaccination efforts in recent weeks, placing the United States as one of the top four countries closing in on herd immunity. Bloomberg's Vaccine Tracker shows last week's vaccination rate was 1.3 million doses per day. At this rate, it will take an estimated ten months to cover over 75% of the population with a two-dose vaccine.
On Friday, the Food and Drug Administration was set to grant emergency use authorization for Johnson & Johnson's single-dose vaccine that is seen as a critical step to further speed up immunization program.
These data points bode well for an economic rebound in the second quarter, but also stoke concern over rising inflation as reopening activity picks up pace while Americans have more cash on hands.
Biden's $1.9 trillion aid package, which includes a third round of stimulus checks and extension of federal unemployment benefits, is expected to pass a House vote on Friday, paving the way for the legislation to be passed by a Democrat-set March 14 deadline.
U.S. treasury yields and some commodity markets surged amid reflation trade in February, sending the price of copper and crude oil to better than one-year highs. Both commodities are sensitive towards industrial activity and greater demand as the economy continues to reopen, with traders positioning for a continued strong market in the coming weeks.
Further spurring gains in the oil complex, unplanned production outages in Texas, New Mexico, and Oklahoma triggered by the unprecedented and protracted artic cold blast last week will have removed at least 20 million barrels (bbl) from the global oil market this month. Some of that crude production may never return, according to analysts, due to the cost of restarting marginal wells. In its latest weekly report, Energy Information Administration showed U.S. crude output dropped 10% to 9.7 million barrels per day (bpd) during the week ended Feb. 19, while refining runs fell to the lowest point since mid-April 2020 when pandemic forced shutdowns slashed gasoline and jet fuel demand.
Unplanned production losses in U.S. shale fields are compounded by a recovery in global oil demand, prompting major commodity funds and investment banks to revise higher their price outlook for the second and third quarters this week. Morgan Stanley estimates the global market was 2.8 million bpd undersupplied in January and February. This followed similar revisions from Goldman Sachs and Bank of America, with both seeing the price of Brent crude in the ballpark of $70 to $80 by midsummer.
In February, WTI futures for April delivery added $8.15 or $16% to close out the month at $61.50 bbl and April Brent futures on ICE expired at $66.13 bbl, adding $9.78 in value on the month. May Brent sharply expanded its discount to the April contract to $1.71 bbl in afternoon trade for a $64.42 settlement. NYMEX March ULSD futures dropped 5.01 cents or 2.6% to $1.8565 gallon, with the April contract expanding its discount to 1.28 cents against the now expired March contact. NYMEX RBOB March futures expired 1.53 cents lower at $1.8770 gallon, while the April contract ended at a steep 7.35 cents premium to the now-expired contract, reflecting the transition to lower Reid vapor pressure gasoline specifications next week.
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