Oil Futures Fall as Supply Chain Issues Slow Production

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 extended losses into a second session early Tuesday, with oil futures continuing Monday's retreat after German industrial production posted an unexpected drop in April, weighed down by supply chain disruptions that highlight potential risks for a post-pandemic global recovery.

Weaker-than-expected industrial data for Germany combined with reduced risk for the U.S. Federal Reserve to raise the federal funds rate in the near term boosted the U.S. dollar index to 90.175 in early trade Tuesday, while pressuring front-month West Texas Intermediate to below $69 per barrel (bbl) after trading at a $70 multiyear high on Monday. International crude benchmark Brent contract for July delivery declined $0.68 or 1% to $70.81 bbl after settling at a 2 1/2-year high on the spot continuous chart at $71.89 bbl late last week. NYMEX ULSD July futures slumped 2.16 cents to $2.0940 gallon and the front-month RBOB contact fell more than 2 cents to trade near $2.1719 gallon.

Greenback regained an upward momentum following Monday's steep drop after U.S. Treasury Secretary Janet Yellen clarified her comments that expanded government spending would not create a higher inflationary environment. Over the weekend, Yellen hinted at potential monetary tightening amid economic optimism, which rescued the greenback and the Treasury yields from Friday's disappointing payroll report. The labor market in May added a modest 559,000 new jobs compared with expectations for 675,000, with the labor participation rate declining to a multidecade low 61.7%.

May's jobs data had put pressure on the dollar as investors bet that jobs growth was not strong enough to raise expectations for the Federal Reserve to tighten monetary policy.

Internationally, German industrial output slumped 1% in April after an increase of 2.2% in March, according to the Federal Statistics Office released overnight. The lack of semiconductors, timber and other intermediate goods seen behind the unexpected decline. The data showed that order books remained well filled with post-pandemic demand but production faltering, creating an unparalleled combination of factors in Europe's largest economy.

German economy's minister Peter Altmaier said industrial output was indeed being hampered by supply bottlenecks but added that business sentiment surveys were suggesting an improvement in coming months.

Meanwhile, German ZEW Survey showed current conditions subindex recovered firmly to -9.1 in June against -40.1 in the previous month and -27.8 expectations. ZEW President Achim Wambach said, "The economic recovery is progressing. Considerably better assessment of the economic situation is now back at pre-crisis levels. The financial market experts therefore continue to expect a strong economic recovery for the next six months," Wambach added.

On economic calendar this morning also was the eurozone's final reading for the first quarter gross domestic product estimate, which came at -0.3% quarter-on-quarter and -1.3% year on year, beating market's consensus. In a welcome boost to Europe's economy, Eurostat halved its estimate of the decline in first quarter GDP from -0.6% to -0.3, although the figures confirm the eurozone was indeed in recession. But of the continent's four biggest economies, only France experienced a recession, with Italy growing in the first quarter, and Germany and Spain avoiding a fourth quarter contraction. Recession is technically identified by two consecutive quarters of falling growth.

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

Liubov Georges