DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange dropped more than 2% in ending the first session of the new trade week, sending the international crude benchmark to just above $69 per barrel (bbl) and the U.S. crude benchmark to just below $66.50. The losses came amid a one-two punch of a strengthening U.S. dollar index joined with tightening restrictions on mobility and businesses operations in China and other southeast Asian countries that are leading to weaker fuel consumption.

At settlement, NYMEX September West Texas Intermediate futures dropped $1.80 or 2.5% to $66.48 per bbl after briefly touching $65.15 per bbl, and Brent crude futures for October delivery settled at $69.04 per bbl, shedding $1.66 on the session. Both contacts declined more than 7% last week. NYMEX September RBOB contract fell 2.21 cents for a $2.2348-per-gallon settlement, paring a decline to an intrasession low of $2.1730 per gallon, and NYMEX September ULSD futures declined 4.24 cents or 2% to $2.0421 per gallon.

Crude shipments to China -- Asia's leading oil importer -- shrunk more than 5% in the first five months of the year compared to the same period in 2020, said the China's Customs Bureau this morning, with China's new year beginning on Feb. 13. Beijing imported 200,000 barrels per day (bpd) less crude oil since last month's daily average and almost 3.3 million bpd below that level reported last year when Chinese refiners stocked up on crude.

Imports of other commodities that are sensitive to economic expansion, including iron ore and cooper, also declined sharply, hammered by extreme weather and tightening COVID restrictions in several industrial hubs in China. Last month, Beijing reintroduced curbs on international and domestic travel, suspending flights and railroad services between COVID hotspots. City officials have ordered mass testing of residents in response to a rapidly spreading Delta variant, but many analysts believe that Beijing will have to pivot from its "zero tolerance" containment strategy sooner rather than later.

Goldman Sachs slashed China's short-term growth estimates from 5.8% to 2.3%. But Goldman analysts forecast a quick rebound at the end of the year, saying fourth-quarter gross domestic product growth would jump to 8.5%.

"China's seven districts are labeled high-risk and 191 districts labeled mid-risk. In the high-frequency data, the traffic congestion index based on 100 cities has begun to decline, which was not the case just a few days ago," Goldman Sachs said Monday morning.

Domestically, the seven-day average for new infections jumped above 110,000 cases daily as of Aug. 8 -- the highest point since mid-February, as the Delta variant sweeps through unvaccinated Americans. The United States averaged about 11,000 cases a day in late June.

Markets will be on the lookout to see if the resurgent virus slows progress in the U.S. job market, which has seen strong job gains so far this summer, adding more than 900,000 new jobs in both July and June, according to the Bureau of Labor Statistics.

Federal Reserve Chairman Jerome Powell indicated the central bank wants to see several months of strong job growth before tapering its $120 billion a month in purchases of bonds and mortgage-backed securities. The case for an earlier-than-expected withdrawal of Fed's quantitative easing program is strengthened by surging inflation despite the Fed and the White House insisting consumer prices will begin to ease later this year.

The next test for the narrative of "transitory inflation" will come Wednesday, with BLS expected to show that the consumer price index slowed to a 5.3% year-on-year increase in July from June's 30-month high.

U.S. dollar index pushed higher in afternoon trading Monday, hitting a better-than-two-week high of 92.995 in trading against a basket of foreign currencies before settling up 0.15% at 92.938, as traders raise bets for an earlier-than-expected tapering of the central bank's quantitative easing monetary policy.

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