DTN Oil

WASHINGTON (DTN) -- Crude and refined product futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange posted solid gains in thin pre-holiday trade Wednesday on expectations for members of the OPEC+ coalition to extend the ongoing 7.7 million barrels per day (bpd) output agreement into the first quarter of next year despite the recent price rally as market participants look to weakening fuel demand across major global economies and rising COVID-19 related fatalities.

Heading into the Thanksgiving Day holiday, U.S. crude benchmark for January delivery added 80 cents to close the session at $45.71 barrel (bbl), up more than 5% on week. ICE January Brent futures rose 75 cents to settle above $48 bbl at $48.61 bbl, and is now in position to push past $50 bbl. NYMEX December ULSD futures rallied to a fresh 9-month spot high at $1.3866 gallon and the December RBOB contract settled the session at $1.2875 gallon, up 2.93 cents on the session.

This week's explosive rally was fueled by a combination of factors, including multiple breakthroughs on the COVID-19 vaccine front, record-high gains in equity markets and expectations for OPEC+ officials to delay a scheduled production increase for at least three months as global demand is nowhere near the target range to absorb additional supplies. Reuters reported Wednesday sources familiar with OPEC+ discussions indicate the producers' group tilted towards extending current cuts through April 2021 -- the timeline needed for widespread vaccine distribution. Major global economies, including Germany, the United States and United Kingdom, announced nationwide vaccination programs could start as early as December.

As oil traders look ahead, the economic recovery following the second quarter crash looks increasingly shaky as cases of COVID-19 surge and companies are forced to lay off employees amid tightening quarantine restrictions that are hobbling their businesses. The U.S. Labor Department reported Wednesday 778,000 initial claims for state unemployment benefits were filed during the week ended Nov. 21, marking the second consecutive weekly increase. Consumer sentiment nosedived nearly 5 points from the previous month to a 4-month low 76.9 in November, with declines driven by a worsening economic outlook for next year.

"Widespread business closures would incur a heavy toll on the entire economy and cause escalating hardships among some households. A delay in federal aid until next year would allow great harm and permanent damage to occur to many firms, local governments, and households," said Richard Curtin, chief economist of University of Michigan's Surveys of Consumers.

Consumer angst was reflected Wednesday in weekly demand data for gasoline released by the Energy Information Administration, showing gasoline supplied to the U.S. market last week fell to the lowest level in nearly six months at 8.129 million bpd, more than 11% below last year's level. Lower demand has led to a larger-than-expected 2.2 million bbl build in domestic gasoline stockpiles to 230.1 million bbl, some 5% above the 5-year average.

The data correlates closely with the sharp drop off in traffic volumes across the United States detailed in high-frequency data despite the approaching Thanksgiving Day holiday -- typically the busiest travel time of the year.

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

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