Oil Futures Tumble Along With Equities as USD Gains to 9-Month High

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session sharply lower, although all contracts moved off the intra-session lows after weekly U.S. unemployment claims fell for the fourth consecutive week through Aug. 14, suggesting an improving labor market despite resurgence in Delta-driven coronavirus infections.

At settlement, NYMEX September West Texas Intermediate futures fell $1.77 or 2% to $63.69 barrel (bbl) after plunging towards $62.63 bbl earlier in the session. NYMEX October WTI futures narrowed their discount to $0.19 bbl against the expiring contact. The international crude benchmark for October delivery plummeted $1.78 for a $66.45 bbl settlement. NYMEX September ULSD contact declined 5.22 cents to $1.9690 gallon and NYMEX September RBOB futures declined to the lowest settlement since the third week of May at $2.0815 gallon.

Downward momentum in the markets Thursday is driven by concerns over rising COVID-19 infections and hospitalization rates across all major oil-consuming economies, including China, the United States and European Union. The number of new coronavirus cases around the world has almost doubled to 84 per million people this week, up from just 46 in late June, according to official statistics compiled by Our World in Data. It is reasonable to assume the uptrend will only accelerate in the fall/ winter months with colder weather keeping folks at home and kids return to schools.

In some U.S. states, COVID surge has already pushed the hospital capacity to the brink, with Alabama reporting no ICU beds were available across the entire state on Wednesday.

For the oil market that has looked toward recovery in global air travel and return of work commute, that will mean no additional demand to be captured in the second half of the year. More evidence of a weakening demand, a number of key economic indicators domestically showed slowing economic growth, with consumer sentiment and retail sales reversing lower mid-summer.

Oil and equities managed to claw back a portion of early morning losses after Burau of Labor Statistics reported unemployment claims fell for the fourth consecutive week through Aug. 14 to a new pandemic low of 348,000, said the U.S. Labor Department.

The continued unemployment claims, meaning the number of Americans receiving benefits for consecutive weeks, fell a larger 79,000 from the previous week to 2.820 million. This is the lowest level for insured unemployment since March 14, 2020 when it was 1.770 million.

U.S. labor market added 943,000 new jobs in July and the unemployment rate fell to 5.4% -- a new pandemic era low, revealed the Bureau of Labor Statistics Report. It was the biggest job gain since August last year, when more than one million positions were filled. Some economists suggest the torrid pace of employment last month moved the Federal Reserve closer to its goal of rolling back its quantitative easing program.

Minutes from July's Federal Open Market Committee meeting released Wednesday afternoon show policymakers are set to start tapering asset purchases within months. The Federal Reserve currently makes $120 billion in monthly purchases of Treasuries and mortgage-backed securities. The minutes also show a split among participants on when to begin the tapering and the appropriate process to do so.

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

Liubov Georges