Oil Futures Slide on India Ahead of OPEC+, FOMC Meetings

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange have started the week with a sharp move lower as market participants await a slew of economic data out of the United States and Eurozone, including key readings on gross domestic product for the first quarter, and ahead of a meeting among ministers of Organization of the Petroleum Exporting Countries and nine producers outside the cartel for additional clues on global oil demand recovery.

Additionally, the Federal Open Market Committee will hold its two-day policy meeting this week on Tuesday and Wednesday with central bank officials expected to reaffirm plans to only adjust bond purchases and the target for its benchmark interest rate when the economy achieves "substantial further progress" toward its employment and inflation goals. With economic recovery evolving from forecast to reality however, markets will increasingly scrutinize Fed language for a potential hint at when the central bank will eventually tighten money flow through higher rates. Fed's Chief Jerome Powell said earlier this month the central bank would give plenty of time and signals before tapering its $120 billion a month purchases of Treasuries and mortgage bonds.

The FOMC policy statement will be released 2 p.m. ET Wednesday, with Powell holding a virtual press conference 30 minutes later.

Economic data released since mid-March show an improving labor market with significant job gains last month and business activity in both manufacturing and service industries accelerated to multiyear highs. An eye-popping jump in retail sales last month further supported the thesis that the end of pandemic-related restrictions will trigger a surge of pent-up demand from consumers, powering a robust recovery.

The Atlanta Fed's GDPNow estimate for real gross domestic product growth in the first quarter stands at 8.3%, however some economists suggest that figure likely exceeds 9%. Bureau of Economic Analysis will release the first reading of the first quarter U.S. GDP 8:30 a.m. ET Thursday.

On the economic calendar Monday, durable goods orders for March, set for an 8:30 a.m. ET release, are expected to have jumped 2.2% from a negative 1.1% in the prior month. Durable goods orders are a subset of retail sales, which exploded 9.8% last month compared with expectations for a gain of 6.1% as many consumers likely spent their $1,400 government stimulus checks mostly disbursed in March.

Despite the upbeat sentiment for economic gains in the United States, oil prices tumbled overnight amid pressured from surging COVID-19 cases and renewed lockdown measures in India and Japan, the world's third and fourth largest oil consumers. S&P Global Platts cut India's 2021 demand forecast for oil products by 9% on Monday to 400,000 barrels per day (bpd) now compared to 440,000 bpd estimated last month. As several states went into lockdown, Platts believes India's gasoline consumption is expected to drop in the near-term to around 700,000 bpd in April.

Given the worsening outlook, it's likely that the lockdowns could be in place for several weeks or even a couple of months, according to analysts. Prime Minister Narendra Modi has however ruled out the possibility of a second nationwide lockdown.

In Japan, a third state of emergency in Tokyo, Osaka, and two other regions began on Sunday, affecting nearly a quarter of the population.

Evolving demand saturation in Asia will likely be the focus of OPEC+ ministerial meeting held on Wednesday this week, but most analysts expect the group will go ahead with its decision to ease output restrictions. OPEC+ agreed to ease production curbs by 350,000 bpd each in both May and June, and a further 400,000 bpd in July.

In early trade, NYMEX June West Texas Intermediate futures fell $0.91 to near $61.21 bbl, and ICE June Brent futures declined $1.03 to trade just above $65 bbl. NYMEX May ULSD futures dropped 2.38 cents at $1.8497 gallon, while May RBOB futures moved down 3.49 cents or 1.8% to $1.9608 gallon.

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

Liubov Georges