Oil Futures Pare Losses as Feds Ease Inflation Fears

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After trading in narrow ranges for most of the session Monday, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled modestly higher, with West Texas Intermediate April contract expiring at $61.55 barrel (bbl), supported by another day of risk-on trade in broader markets and late-afternoon weakness in the U.S. Dollar Index after several Federal Reserve Bank officials offered upbeat remarks on the economy's ongoing recovery.

Federal Reserve Bank of Richmond President Thomas Barkin told Bloomberg News on Monday that inflationary pressures bubbling up within the economy are likely not to persist beyond 2021, adding that there is no sign, yet that economy's recovery would lead to unwanted inflation.

"We are going to see an extremely strong year and I think that strong year is going to lead to some price pressures. Inflation, however, is not a one-year phenomenon, it's a multi-year phenomenon" he added.

In recent weeks, Fed's officials have tried and failed to calm the unnerved bond markets, with yields on 10-year Treasury notes surging to 14-month high 1.74% as investors increasingly priced in a swift post-pandemic recovery turbocharged by $1.9 trillion spending and accelerated pace of vaccinations. Following the remarks Monday, treasury yields, however, eased six basis points to 1.682%, opening door for a higher session in equity markets and a softer U.S. dollar.

Next, investors will shift their focus to Congressional testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen on tap for Tuesday and Wednesday, March 23, 24 this week. Both have advocated the U.S. must go big on its stimulus measures amid lackluster recovery in the labor market.

Last week, the U.S. central bank pledged to keep interest rates near zero for the next two years and continue with its monthly $120 billion purchases program.

Outside the U.S., prospects for a quick recovery look more elusive as ever, with European Union enacting a third round of lockdowns amid an embarrassingly paltry vaccine campaign and much of the developing world lacks access to COVID vaccine altogether.

Last week's sell-off in oil futures, triggered in part by AstraZeneca's hurdles with European regulators, likely reminded investors that oil market is global in its nature and optimism over U.S. recovery is not enough to push prices much higher.

Further weighing on prices, U.S. shale production showed some early signs of a rebound this month, with domestic operators re-activating nine additional oil rigs during the week ended May 19, with drilling activity concentrated in a prolific Permian basin of Texas and New Mexico. Rystad Energy identified 435 started frac jobs in the first two weeks of March, which implies that the final March total could exceed February's level by 50%.

On a session, April West Texas Intermediate futures expired 13 cents higher at $61.55 bbl and May WTI contract settled near parity at $61.56 bbl. The May international crude benchmark Brent contract on ICE settled little changed at $64.62 bbl. NYMEX April ULSD futures added 70 cents for a $1.8293 a gallon settlement and front-month RBOB contact advanced 1.16 cents to close out the session at $1.9598 a gallon

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

Liubov Georges