WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange retreated early Tuesday, with the crude contracts reversing from multi-month highs spurred by a broader rally in equity markets and diminished likelihood that the United States would rejoin the Joint Comprehensive Plan of Action with Tehran's new hardline administration while traders await testimony from Federal Reserve Chairman Jerome Powell when he could elaborate upon the central bank's hawkish shift on monetary policy.
U.S. Dollar Index regained some lost ground in early trade Tuesday, pushing the greenback 0.2% higher against a basket of foreign currencies to above 92.00. Greenback's strength comes ahead of testimony from Powell before a congressional panel scheduled for 2:00 p.m. ET.
In prepared remarks, the Fed chief touts a U.S. economy that is quickly recovering from the coronavirus recession but an economy that still needs support from the U.S. central bank.
"Indicators of economic activity and employment have continued to strengthen, and real Gross Domestic Product this year appears to be on track to post its fastest rate of increase in decades. However, the pace of vaccinations has slowed, and new strains of the virus remain a risk," Powell will tell lawmakers.
To that point, Centers for Disease Control and Prevention said 150 million Americans have been fully vaccinated against the coronavirus, equating to about 45% of the total population, with around 318.6 million doses administered as of Monday. Moderna and Pfizer vaccines have a two-dose regime.
Following last week's Federal Open Market Committee meeting, the central bank released an updated set of economic projections where members upgraded gross domestic product growth to 7% this year from 6.5% seen in March, while also boosting inflation expectations by 1% to 3.5%.
Market concerns over the past few weeks have been focused on inflation that is rising at its fastest pace since the global financial crisis of 2008 and might force the Federal Reserve to raise interest rates faster than it wants. Powell said price pressures have increased "notably," but repeated his belief that after special factors tied to the pandemic ease, inflation will drift back to the Fed's longer-term 2% target.
On the geopolitical front, Iran's presidential elections held on June 18 ushered in a hardliner, elevating Chief Justice Ebrahim Raisi to the presidency in a landslide victory to replace a moderate President Hassan Rouhani -- an architect of the multilateral nuclear deal with the United Kingdom, France, Germany, Russia, China and the European Union reached in 2015. Turn out for the election was the lowest since the 1979 Iranian Revolution.
Market observers and analysts believe Raisi will take a tougher stance during multilateral talks with Western powers, while any agreement could be delayed until after his swearing in in early August.
The U.S. withdrawal from the agreement under the Trump administration in May 2018 was followed by tough U.S. sanctions on virtually all sectors of Iran's economy including oil exports, with sanctions also placed on individuals, including Raisi himself. Reaching an agreement would lead to a surge in Iranian oil exports with the end of sanctions, with reports indicating roughly 60 million barrels (bbl) of crude oil in floating storage that could be quickly disbursed. Tehran has repeatedly stated the removal of all sanctions are a prerequisite to negotiating directly with Washington, with talks so far this year conducted between the other nations of the agreement and Iran and the United States.
In early trading, NYMEX West Texas Intermediate July futures fell about $0.50 to $73.15 bbl, retreating from the highest settlement on the spot continuous chart since October 2018 ahead of expiration this afternoon, and the August contract declined to $72.71 bbl in the backwardated market. ICE August Brent crude slipped lower, down $0.42 to $74.50 bbl, reversing from an overnight $75.30 bbl high. Oil product futures also fell, with July RBOB futures down 0.55 cents to $2.1915 gallon, and July ULSD futures eased 0.6 cents to $2.1208 gallon.
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