Soaring Treasury Yields, US Dollar Send Oil Futures Lower

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- With U.S. Treasury yields hitting a fresh 14-month high and the U.S. dollar strengthening, crude and refined products futures on the New York Mercantile Exchange followed equities lower in afternoon trade Tuesday, sending the U.S. crude benchmark 2% lower on the session. The complex was further pressured as market participants anxiously track a steady rise in domestic coronavirus infections and project what effect higher COVID-19 cases will have on oil demand during the second quarter.

On the session, West Texas Intermediate futures for May delivery dropped $1.01 to $60.55 barrel (bbl) and Brent May contract on ICE declined 84 cents to settle just above $64 bbl ahead of Wednesday's expiration. Next-month delivery June contact finished the session near parity at $64.17 bbl. NYMEX April ULSD futures fell 2.06 cents to $1.7892 gallon and May futures narrowed its premium to 0.22 cent against the expiring contract. NYMEX RBOB April futures pared earlier declines to settle at $1.9890 gallon, 0.62 cent lower on the session, with next-month delivery May contact settling at $1.9964 gallon.

Tuesday's lower session comes as investors weigh the risk of a potential third wave of COVID-19 infections in the United States against an accelerated pace of daily vaccinations. A growing number of U.S. states are now expanding vaccine access to all adults, with California and Florida opening eligibility to 50 and older on April 1.

With states expanding vaccine access, the nationwide inoculation rate likely accelerated from 2.76 million doses a day last week, shortening the timeline needed to reach herd immunity.

The fast pace in inoculations comes against the backdrop of an alarming rise in COVID-19 cases as states prepare to further ease quarantine restrictions. Nationwide coronavirus cases jumped by as much as 12% over the weekend as senior officials including President Joe Biden urged Americans to stick to public health measures to help reverse the trend.

"I'm reiterating my call for every governor, mayor and local leader to maintain and reinstate the mask mandate," Biden said on Monday.

Separately, U.S. crude oil inventories are projected to have fallen by 600,000 bbl in the week ended March 26, with gasoline supplies seen rising by 1 million bbl from the previous week, according to analysts. Stocks of distillates are expected to rise by 400,000 bbl from the previous week. Refinery use likely rose 1.7% to 83.3% of capacity as activity ramps up after plunging in February due to Winter Storm Uri.

Traders also positioned ahead of Thursday's OPEC+ meeting, with expectations for the alliance to extend most of their 7.05 million barrels per day (bpd) production cuts into May and Saudi Arabia to maintain a 1 million bpd curb on output for another month. Reports this week suggest Saudi Arabia could again surprise the market and extend its unilateral 1 million bpd production cut for two more months through June. The 1 million bpd Saudi production cut comes atop of the OPEC+ quota.

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

Liubov Georges