WTI Fades from 32mos High ahead of Expiry, USD Strengthens
WASHINGTON, D.C. (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 PM 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
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 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 0.55cts to $2.1915 gallon, and July ULSD futures eased 0.6cts to
Liubov Georges, 1.646.359.4088, email@example.com, http://www.dtn.com
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