Oil Futures Surge to Fresh Highs Even as Shutdown Looms

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Spurred on by the promise of increased coronavirus vaccinations, nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied to another set of fresh highs Friday afternoon. The international Brent crude benchmark settled above $52 barrel (bbl) for the first time since late February and the U.S. West Texas Intermediate benchmark inched closer to $50 bbl with a $49.10 settlement.

Expectations that the U.S. Food and Drug Administration would later Friday grant Moderna an Emergency Use Authorization for its COVID-19 vaccine continued to have oil futures traders looking toward a demand recovery in 2021, with approval setting the stage for distribution of the drug early next week.

Moderna is one week behind rival Pfizer, which rolled out vaccines this week. U.S. Vice President Mike Pence received vaccination earlier Friday. Pfizer also said on Thursday production of its vaccine was advancing quickly, expecting to deliver 1.3 billion doses in 2021.

NYMEX January WTI futures settled up $0.74 at $49.10 bbl with the February contract at a narrower $0.14 contango ahead of the January contract's expiration Monday afternoon. ICE February Brent crude futures settled at parity with March delivery at $52.26 bbl; the forward curve again moved into a very tight backwardated market structure.

NYMEX January and February ULSD futures also ended the session at parity at $1.5130 gallon with the January contract up 1.78 cents and February gaining 1.63 cents. ULSD's January to June calendar spreads are in a tight 18-point spread as a contango market structure unwinds.

NYMEX January RBOB futures gained for a fifth consecutive session Friday, up 0.75 cents to a $1.3956 gallon settlement, just three points shy of the $1.3959 August high. The gasoline contract rallied 8.44 cents or 6.5% on the week, with the backwardation in the prompt spread narrowing 18 points to 0.46 cents.

Both product contracts found support in weekly data released Wednesday from the Energy Information Administration showing refiners exercising discipline in keeping run rates low to prevent big builds in inventories. EIA showed the U.S. refinery run rate fell 0.8% to 79.1% during the week ended Dec. 11, which compares with a 90.6% run rate during the same week in 2019 and a 92.5% 5-year average.

The end of week rally came despite a strengthening U.S. dollar, which gained 0.2% after falling to 89.640, a better than 2-1/2 year low, Thursday. There was also a drop in equities, with stocks selling off as the U.S. government barrels towards shutdown at midnight.

The U.S. Congress remains at an impasse over funding the government, tied to a coronavirus relief bill, which would be the fifth since the pandemic sparked a national emergency in March. Both sides indicate they are close to resolving their differences, although Republicans are balking at the insistence of some Democrats that the relief bill would be a down payment on a much larger relief bill in January when Joe Biden is to be sworn in as the 46th president of the United States.

Congress is debating on a $1.4 trillion omnibus bill that would keep the government open through Oct. 1, 2021, and a COVID relief package worth $900 billion that includes direct payments to citizens and assistance for small businesses. U.S. Senate Leader Mitch McConnell has told members of the upper chamber they will need to toil through the weekend to ensure passage on both proposals.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne