Crude slides nearly 2% as US dollar tests two-month highs

An overnight crude price slide accelerated in US trading June 17 as the US dollar tested two-month highs on the heels of a hawkish Federal Reserve Open Markets Committee meeting June 16.

NYMEX July WTI settled down $1.11 at $71.04/b and ICE August Brent moved $1.31 lower to $73.08/gal.

The US dollar continued its move higher June 17 propelled by US Federal Reserve statements projecting interest rate hikes as soon as 2023.

ICE US Dollar Index futures climbed to around 91.946 in afternoon trading, up from 91.129 June 17 and on pace for the highest close since April 12.

"You could call this a 'mini taper-tantrum,'" Price Futures Group market analyst Phil Flynn said.

"Because the Fed looks to be one of the first economies that is even talking about raising interest rates at all in the future it looks like they will be ahead of the curve, so money is flowing back into the dollar. As the dollar ascends it is putting downward pressure on oil."

NYMEX July RBOB settled down 2.20 cents at $2.1342/gal and July ULSD finished 3.66 cents lower at $2.0668/gal.

The value of the dollar and that of dollar-denominated commodities, including oil, are typically inversely correlated.

"The day after the Fed's hawkish surprise is filled with investors trying to price in the end of monetary stimulus," OANDA senior market analyst Edward Moya said in a note. "The dollar is king again and will continue rule as long as this commodity selloff continues."

Despite the pullback in futures prices, market analysts remain bullish on crude long-term.

"If you look at the price action, all equities were down [following the FOMC meeting], especially industrials," said Bjarne Schieldrop, chief commodity analyst at SEB Bank. "A stronger dollar implies weaker commodities. However, the bull thesis for oil is intact -- vaccines have been successfully rolled out and economies like California have fully reopened, and we expect Europe to return to normality in Q3. Furthermore, OPEC+ is in full control of the price."

RBOB cracks rise as RINs selloff slows

RBOB cracks moved edged higher June 17 after testing four-month lows the session prior as the recent selloff in Renewable Identification Number prices slowed.

S&P Global Platts assessed current year D6 RINs at $1.2775, down just 2.25 cents or 1.7% from June 16. The decline marks a significant slowing of the recent freefall in RINs prices, which had dropped an average of 10% in each of the four previous sessions.

RINs prices have come under pressure amid reports that the White House may ease some of the renewable fuel standards mandates.

Product cracks have a RINs component baked-in, and the market is hedging possible policy relief to refiners by selling RBOB and ULSD cracks, S&P Global Platts analysts Sergio Baron said.

The front-month ICE New York Harbor RBOB crack versus Brent was up around 22 cents in afternoon US trading at $16.55/b.