Rig Count, Demand Weigh on Oil Futures

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange posted modest losses in afternoon trade Friday, with the U.S. crude benchmark slipping from a nine-month high. The losses came after the number of active oil drilling rigs in the United States climbed to their highest count since early May this week, boosting expectations for higher domestic crude production at a time when short-term market fundaments remain overwhelmingly bearish.

Baker Hughes reported on Friday the number of oil rigs operating in the United States rose 12 to 338 this week, with the largest increase coming from the Permian, up four; followed by the Eagle Ford, up three; the Marcellus, up two; and Niobrara and Utica, with each basin up one. The rig count has now increased for a third consecutive week through Dec. 11, bringing the total gain during the fourth quarter to 75.

On the session, NYMEX January West Texas Intermediate futures slipped 21 cents to settle at $46.57 per barrel (bbl), while advancing 1% this week, and the Brent contract on ICE finished the week just below $50 per bbl at $49.97. NYMEX January ULSD futures settled little changed at $1.4369 per gallon, and January RBOB futures declined 0.89 cent to settle at $1.3077 per gallon.

The long-awaited rollout of vaccination programs in the United States, Canada and the United Kingdom provided ample bullish sentiment to counter rising oil inventories and tightening quarantine restrictions across several U.S. states. In the latest move to slow the viral spread, New York Governor Andrew Cuomo ordered New York City restaurants to suspend indoor dining effective Monday, Dec. 14, as the state's hospitalizations have topped 5,000 for the first time in nine months. That followed a string of tighter quarantine restrictions across Northeastern states, including Pennsylvania and Virginia, where local governments re-closed contact-sensitive businesses and imposed nightly curfews.

This week's economic data highlights the scope and breadth of the pandemic's deleterious impact on the domestic labor market and broader economy. The National Restaurant Association said more than 110,000 restaurants have completely shut down as a result of government-imposed lockdowns and lost business amid the pandemic, accounting for approximately 17% of U.S. restaurant capacity. Thirty-seven percent of operators said it is unlikely their restaurants would still be in business six months from now.

Weekly unemployment claims climbed to their highest rate since mid-September during the week ended Dec. 4 to 853,000 -- an increase of 137,000 new applications since the prior week's upward revised level. The consumer sentiment index showed Americans remain pessimistic over their short-term financial prospects and larger economy battered by the relentless rise of COVID-19 infections and on-and-off-again restrictions on businesses.

Stimulus talks in Washington, D.C., made little progress this week as Republican and Democratic leaders remain deadlocked on a new relief package for millions of American businesses and individuals. The Senate, however, on Friday passed a one-week spending bill that will prevent a government shutdown, giving the White House and Congress until Dec. 18 to negotiate broader spending measures. The vote came just hours before a midnight deadline, with President Donald Trump expected to sign the bill.

Despite those headwinds, investors continue to look past the pandemic toward a post-COVID demand recovery on the back of an expected rollout of coronavirus vaccines across major global economies. With an FDA advisory panel lending its endorsement Thursday, the first inoculations in the United States with the Pfizer/BioNTech vaccine could begin early next week.

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

Liubov Georges