Oil Futures Drop on Virus Mutation

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

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange ended down but off session lows Monday, with prices dropping back from Friday's multi-month highs. The losses came as expectations for a 2021 recovery in world oil demand were pushed back as countries spanning the globe deploy bans on travel from the United Kingdom amid a new strain of the COVID-19 virus.

UK Prime Minister Boris Johnson and French President Emmanuel Macron discussed their goal for a quick resolution after France closed its border with the UK for 48 hours as coronavirus infections spike amid the new strain that is said to be aggressive. Johns Hopkins University's COVID tracker shows new infections in the UK reached their highest point since the pandemic began on Sunday at 36,084, with total deaths caused by COVID-19 at 67,718.

Restrictions on UK travel by at least 40 countries will hobble fuel demand and join various restrictions on certain business activity in some states in the United States, where Johns Hopkins University's COVID tracker says infections reached a pandemic peak at 249,709 on Friday.

Some solace was found with the second rollout of a COVID-19 vaccine on Monday by Moderna after the U.S. Food and Drug Administration on Friday granted Emergency Use Authorization joining the Pfizer vaccine. The Centers for Disease Control and Prevention reports 2.8 million doses were distributed, and 556,208 doses administered as of Sunday afternoon.

Congress also passed a $2.3 trillion spending package Monday that is expected to be quickly signed into law by U.S. President Donald Trump, with $900 billion earmarked for COVID-19 relief. This is the fifth relief bill since the pandemic was declared a national emergency on March 13 by Trump and includes $600 stimulus checks and an extension of weekly jobless benefits of $300 for 11 weeks starting in late December.

NYMEX January West Texas Intermediate futures expired down $1.36 at $47.74 per barrel (bbl), with the February contract ending at a $0.23 premium. ICE February Brent futures settled down $1.35 at $50.91 per bbl, with its premium to February WTI futures narrowing to $2.94 per bbl.

NYMEX January ULSD futures settled down 3.56 cents at $1.4774 gallon, with the January-June spread tight at 28 points. NYMEX January RBOB futures settled down 3.52 cents at $1.3604 per gallon, with the prompt spread in a tight 56-point contango.

Monday marks the winter solstice in the Northern Hemisphere, the shortest period of light of the year, with trading for 2020 also quickly vanishing. This week's trading is abbreviated by a shortened trade session on Thursday and no trading on Friday in celebration of Christmas Day.

In the United States, a few regional and several national indicators will be released this week including two consumer sentiment surveys, new and existing home sales, and durable goods orders that should offer clues on the consumer psyche following disappointing retail sales in November that suggest rising unemployment and expiring relief payments prompted consumers to hunker down. It also highlights the rapid effect growing restrictions on certain business activity to slow the spread of COVID-19 have on sales, with a drop in activity at restaurants and bars a key category in November's retail sales data.

Housing has been on a surge since the pandemic and riots caused an urban exodus, accelerating growth in durable goods that has lent support for diesel fuel. Expectations are for the trend in housing sales to have slowed in November but to a still-robust reading, while new durable goods orders are seen downshifting from a 1.3% increase in October to 0.6% advance in November.

The second reading of U.S. gross domestic product for the third quarter is due out Tuesday, with the Bureau of Economic Analysis expected to reaffirm its advanced estimate of 33.1% annualized growth. Federal Reserve board members and presidents last week projected the U.S. economy would shrink 2.4% in 2020 on an annualized basis, better than the 3.7% contraction envisioned in September. The central bank projects the U.S. economy would grow at a 4.2% annualized rate in 2021, up 0.2% from September's outlook.

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

Brian Milne