DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply early Thursday, sending the U.S. crude benchmark below $63 bbl as investors fled to safety on concerns the Federal Reserve would begin tapering its purchase of bonds just as a resurgence in coronavirus infections linked to the spread of highly infections Delta variant looks set to stall a global economic recovery.

U.S. Dollar Index jumped to a nine-month high at 93.515 in overnight trading after 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.

"Several participants" said aggressive monetary policy was still needed to fix the damage done to the labor market by the pandemic and felt ongoing bond purchases helped that process. "A few" countered that Fed policy had little left to contribute to a process driven by private business and household decisions. "Several" others said the condition of labor markets prior to the pandemic "may not be the right benchmark" given lasting changes to the economy.

"No decision regarding future adjustments to asset purchases were made at this meeting," read the minutes.

Since FOMC held its last discussion, however, 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.

A stronger greenback weighed on all dollar-denominated commodities this morning, making them more expensive to holders of other currencies. NYMEX September West Texas Intermediate futures fell by another 3.8% overnight to under $63 ahead of the contract's expiration Friday afternoon. Next-month delivery October WTI futures narrowed its discount to $0.17. International crude benchmark for October delivery moved down $2.25 to $65.98 bbl. NYMEX September ULSD contact plunged 6.14 cents to $1.9598 gallon and NYMEX September RBOB futures declined to $2.0894 gallon.

Further weighing on the petroleum complex, domestic demand for gasoline showed no marked improvement over the past few weeks, stalling around 9.3 million barrels per day (bpd) with only few weeks left in the summer driving season. The lack of work commuting, retreating consumer spending, and a resurgent pandemic among other factors continue to weigh on domestic gasoline consumption.

Accelerating coronavirus infections tied to a highly transmissible Delta variant are weighing on consumer sentiment, spending and the outlook for the economy. The seven-day moving average for daily infections moved above 100,000 cases in mid-August to 114,190, up 18.4% from the prior week, according to data from the Centers for Disease Control and Prevention.

A British public health study published this week found that protection from Pfizer and AstraZeneca vaccines against the now prevalent Delta variant of coronavirus weakens within three months. Oxford University study found that 90 days after a second shot of either of the two vaccines, their efficacy in preventing infections fall to 75% and 61%, respectively. The Oxford findings are in line with an analysis by the CDC and come as the U.S. government outlines plans to make COVID-19 vaccine booster shots widely available next month amid a rise in infections.

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