DTN Oil

WASHINGTON (DTN) -- Extending gains into a sixth consecutive week, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session mostly higher on expectations for growth in global oil demand to outpace gains in crude production from OPEC+ and U.S. shale, leading to increasingly tighter fundamentals in the first half of the year that are compounded by simmering geopolitical tensions in Eastern Europe and the Middle East.

Profit taking cut into oil futures rally in afternoon trading, although RBOB, West Texas Intermediate and Brent contracts finished the session with gains. Exception to the complex was the ULSD contract that accelerated losses heading into the weekend impacted by a powerful Nor'easter that has triggered blizzard warnings from the Mid-Atlantic to southeastern New England. The storm could strengthen into a "bomb cyclone," according to meteorologists, that could slam eastern New England with a full-blown blizzard.

At settlement, the ULSD contract for February delivery fell 0.90 cents to $2.7855 gallon after having gained in all but three sessions out of the last 26 until Friday. NYMEX RBOB February futures advanced more than 2 cents to settle at $2.5423 gallon.

International benchmark Brent crude settled a tad above $90 barrel (bbl), up $0.69 on the session and more than $2 higher on the week. WTI futures for March delivery gained $0.21 on Friday for an $86.82 bbl settlement, while adding $1.99 on the week.

WTI futures pared earlier gains in afternoon trading after industry data from Baker Hughes reported the number of active rigs drilling for oil in the United States increased by four this week to 495 -- the most since early April 2020. The number of active rigs is 200 higher than the comparable week in 2021.

Despite continued gains in drilling activity, U.S. production growth is lagging expectations for a robust recovery. The Energy Information Administration reported domestic operators pumped 100,000 barrels per day (bpd) less oil last week with a daily rate of 11.6 million bbl -- 1.4 million bpd below the pre-pandemic level.

Globally, OPEC+ producers have struggled to raise production in line with their agreed to 400,000 bpd monthly increases, with several key members of the alliance, including Russia and Nigeria, speculated to have hit their output ceiling. A structural supply deficit from OPEC+ producers, as well as laggard recovery of U.S. shale output, means oil prices could go even higher.

Investors will look towards the next OPEC+ meeting on Feb. 2 for the group's decision on production and output levels for March. The alliance is expected to maintain its gradual unwinding of production cuts and proceed with its planned 400,000 bpd output hike for the final month of the first quarter.

On the economic data front, the U.S. consumer sentiment index published by the University of Michigan declined this month to the lowest level since November 2011 after a brief recovery in the final weeks of last year. The vicious spread of delta and omicron variants of COVID were largely responsible for the steep decline; but other factors have become more pronounced in shaping consumers' outlook.

"Overall confidence in government economic policies is at its lowest level since 2014, and the major geopolitical risks may add to the pandemic active confrontations with other countries. Although their primary concern is rising inflation and falling real incomes, consumers may misinterpret the Fed's policy moves to slow the economy as part of the problem rather than part of the solution," said Surveys of Consumers Chief Economist Richard Curtin.

This week, the U.S. Federal Open Market Committee signaled the central bank is readying the first interest rate hike in three years as early as March to slow deepening inflation. Fed Chairman Jerome Powell indicated at a news conference following the conclusion of a two-day policy meeting that the Fed might need to move more aggressively than previously thought.

Economists at Bank of America and JP Morgan increased their forecasts for lifting the federal funds rate, forecasting between five and seven increases this year. JPMorgan said it is now looking for five rate hikes this year, up from its previous forecast of four, but trimmed its projection for 2023 from four to three. Adopting an even more hawkish view, economists at Bank of America expect the Fed will raise rates by 25 basis points at every remaining meeting this year for a total of seven hikes, and once per quarter in 2023.

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