WASHINGTON (DTN) -- Fading from intrasession highs, crude and petroleum product futures on the New York Mercantile Exchange along with Brent crude on the Intercontinental Exchange settled mixed Monday as investors positioned ahead of this week's Federal Open Market Committee meeting that is expected to set direction for U.S. monetary policy through the end of summer.
After trading at a $71.78 more than 31-month high on the spot continuous chart, West Texas Intermediate futures for July delivery settled Monday's session little changed at $70.88 barrel (bbl), while the international Brent crude benchmark edged modestly higher to $72.86 bbl. NYMEX ULSD July futures declined 0.91 cents to $2.1116 gallon and the front-month RBOB contact fell 1.49 cents for a $2.1712 gallon settlement.
The Federal Open Market Committee begins its two-day policy meeting Tuesday, with expectations for no change to the central bank's bond buying program or the near zero overnight lending rate to be announced Wednesday afternoon. The closely followed meeting comes against a backdrop of rising inflation and overall underperformance by the labor market that could prompt central bank officials to begin discussing tapering the $120 billion in monthly asset purchases of Treasuries and mortgage bonds.
The central bank began its massive bond-purchasing activity at the outset of the pandemic in March 2020 and later expanded the program, ensuring the flow of credit and the ability of the market to function as businesses were ordered to lock down. Officials have pledged to maintain easy monetary policy "until substantial further progress has been made towards the Committee's maximum employment and price stability goals." Fed Chairman Jerome Powell has reiterated the central bank's willingness to allow inflation to climb above its 2% target in order to accommodate increased employment.
These comments from central bank officials are being challenged, with consumer prices surging to 5% in May from a year earlier, the highest inflationary rate in 13 years, following a 4.2% increase in the 12 months through April. Powell and U.S. Treasury Secretary Janet Yellen insist the current inflation dynamics are transitory as the economy is rebounding from the pandemic much faster than expected and that has been met with shortages of key materials that have wreaked havoc on global supply chains.
Some economists disagree with the policy and are concerned inflation could get out of hand before the central bank can react. They also point to the challenges in reaching full employment, with the lockdowns during the pandemic upending the traditional relationship between employee and employer. They note shortages of available labor, with businesses across the country struggling to find workers despite a record-breaking eight million listed job openings.
In March, the last time central bank released its quarterly economic forecast, most officials expected the unemployment rate to fall to 4.5% by the end of this year and decline further to 3.9% in 2022. U.S. unemployment rate currently stands at 5.8%.
Early in the session, oil futures were boosted by signs of improved demand fundamentals in some key emerging and developing markets, with India easing COVID-19 restrictions and Brazil's economy avoiding recession despite a brutal wave of infections at the start of the year. Increased mobility and rebound in local economies bolster expectations for higher demand growth in the second half of the year.
Despite encouraging data, the International Energy Agency still revised down its demand projections by 300,000 barrels per day (bpd) for the third quarter, citing inadequate access to the COVID-19 vaccine in much of the developing world. IEA expects global oil demand to grow at annualized rate of 5.4 million bpd this year and a further 3.1 million bpd in 2022, reaching pre-pandemic level of 100.6 million bpd late next year.
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