DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange turned mixed in afternoon trade Monday, with U.S. crude benchmark finishing the session mostly unchanged. This came despite a sharp drop in the U.S. dollar index amid a fresh wave of risk-on sentiment in financial markets as oil traders look to the start of peak summer driving season in the United States amid signs of strong demand growth heading into the Memorial Day holiday.

Gasoline demand in the United States climbed above 9 million barrels per day (bpd) in the second week of May, moving slightly above the five-year average despite a historic run-up in retail gasoline prices that breached the $4-per-gallon mark in early March.

"Based on our projections, summer travel isn't just heating up, it will be on fire. People are overdue for a vacation, and they are looking to catch up on some much-needed R&R in the coming months," said Paula Twidale, senior vice president, AAA Travel.

This year's forecast marks the second-highest single-year increase in travelers, behind 2021, bringing volumes almost in line with pre-pandemic levels. Reflecting expectations for strong gasoline demand this summer, NYMEX RBOB June futures contract registered an all-time high $4.0640 per gallon on May 16 as traders simultaneously grew concerned over low inventory levels. Gasoline stockpiles now stand at their lowest level since December 2021 and some 8% below the five-year average.

In financial markets, U.S. equities led by the financial sector rallied on Monday, as the S&P 500 retreated from bear-market territory after flirting with the level in a volatile trading session on Friday. Dow Jones Industrials surged more than 600 points on the session, with the S&P 500 up 1.9%.

Oil complex has been closely tracking financial markets in recent days as investors debate how far U.S. Federal Reserve would need to raise interest rates to tame sky-high inflation. Atlanta's Federal Reserve President Rafael Bostic said on Monday that unless inflation doesn't decline through the summer, he would advocate for a more aggressive move on interest rates. Earlier this month, several Fed officials ruled out the need for a 75-basis-point rate increase, betting on inflation gradually easing over the next several months. Bostic further commented he sees some reaction in the broader economy to the recent increases in the federal funds rate, but said the response is not broad enough.

Fed's monetary policy and its fight against inflation will once again take center stage this week as investors will scrutinize the minutes of the central bank's April policy scheduled for release Wednesday afternoon.

In China, officials are finally allowing a partial reopening of Shanghai, with some COVID curbs, such as using mass transit and grocery shopping, being lifted. But the central Jing'an area, a prime office district, went back into lockdown over the weekend and most people are still unable to move about freely. In Beijing, COVID cases continued to push higher over the weekend, reaching a record 99 on Sunday. Some bus routes and subway stations are suspended, delivery drivers have been banned from entering residential compounds, and an entire housing complex of 5,000 people were quarantined after 26 cases were found. Bloomberg data shows that nationwide subway usage for the week ended May 21 in the top 11 cities was down 43% from the same time last year, with no one using subways in Shanghai. Excluding Shanghai, ridership in China is down 13%. China's air travel bounced back slightly from a late-March low but remains about 50% below the volumes seen at this time last year.

West Texas Intermediate July futures settled Monday session up 1 cent at $110.29 per barrel (bbl), and international crude benchmark Brent contract for July delivery advanced $0.87 to $113.42 per bbl. NYMEX June RBOB declined 3.93 cents to $3.7977 per gallon, while front-month ULSD rallied 2.97 cents to $3.7688 per gallon.

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

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