WTI Futures Fall as US Dollar Hits 5-Mo High, US Infections Rise

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange dropped in early trade Tuesday, weighed down by a surge in the U.S. Dollar Index and in Treasury bond yields as investors assess the risk of rising coronavirus cases in some U.S. states that have prompted President Joe Biden to call on state and local government officials to reinstate a mask mandate and pause reopening plans.

Yields on the 10-year Treasury note surged to fresh 14-month high 1.776% in overnight trading, pushing the U.S. Dollar Index above the 93-mark for the first time since early November. Higher Treasury yields have been a precursor to the strength in the U.S. dollar in recent weeks, with the appeal of the greenback continuing to draw investors despite an alarming COVID-19 surge in some U.S. states. Nationwide coronavirus cases jumped by as much as 12% over the weekend as senior officials, including 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.

Still, with daily vaccinations topping three million doses a day that have led to a high rate of inoculation among senior Americans, hospitalizations and COVID-19 related deaths are likely to remain subdued compared to the early days of the pandemic. Centers for Disease Control and Prevention data shows 52.6 million Americans have now been fully vaccinated against the coronavirus, with more than 143.6 million doses administered as of Monday.

The surge in the U.S. dollar Tuesday morning might suggest traders and investors continue to focus on a recovery scenario rather than a potential fallout from rising COVID-19 cases.

Separately, Saudi Arabia is reportedly prepared to extend its voluntary 1 million barrels per day (bpd) production cut into May and June, while pushing for OPEC+ coalition to once again rollover most of 7.05 million bpd in output curbs for another two months. Russia appears to be supportive of the plan but might seek a modest output increase when the group meets via videoconference on Thursday. Russian oil and gas condensate production increased to 10.22 million bpd in the March 1-28 period from 10.1 million bpd in February, according to the government statistics, broadly in line with Moscow's plans.

A new wave of coronavirus lockdowns and lack of vaccine access in much of the developing world cast doubts that a global demand recovery will occur in the first half of the year. Furthermore, rising crude stockpiles in the United States, which have been building for five straight weeks, have further weighed on prices.

Near 7:30 a.m. ET, West Texas Intermediate May contract fell more than $1 to trade just above $60 per barrel (bbl) at $60.25 bbl and Brent May contract on ICE dropped below $64 bbl, with next-month delivery June futures trading near parity. NYMEX April ULSD futures declined 2.51 cents to $1.7847 gallon and May futures trading with a 0.25-cent premium to the expiring contract. NYMEX RBOB April futures retreated nearly 3 cents to $1.9677 gallon and the May contract is trading at a 0.61-cent premium ahead of the April contract expiration at Wednesday's close.

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

Liubov Georges