DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange settled lower Tuesday, consolidating within Monday's trade range. The losses came as a growing number of new restrictions on flights from the United Kingdom imply lost jet fuel demand at a time the airline industry had hoped for a gradual recovery while gasoline demand in the United States remains constrained by high unemployment and an array of state restrictions on business activity.

The new strain of coronavirus that triggered a spike in new infections in the UK prompted oil traders for a second session to consider a global oil demand recovery would likely take longer than previously expected despite two COVID-19 vaccines now being widely distributed, along with vaccinations in Russia and China from their state-led efforts.

Ugur Sahin, CEO of German pharmaceutical company BioNTech, which partnered with U.S.-based Pfizer, during a news conference early Tuesday said he had a high degree of confidence their COVID-19 vaccine would be successful in combating the new strain, indicating the protein structure of the virus variant was 99% the same as prevailing strains. Sahin said studies would need to be conducted to determine if adjustments would need to be made, with data from those studies to take two weeks. He said any adjustments to the vaccine, which is 95% effective in combating COVID-19, would take six weeks.

The oil futures rally through Friday, Dec. 18, was already viewed as overdone, with technical indicators showing an overbought market. Fundamental data suggested demand remained tepid while inventories are high. This prompted OPEC+ earlier this month to agree to a smaller 500,000 barrel-per-day (bpd) increase in production to begin in January than the previous agreement that would lift output by the 23 countries by 2 million bpd. OPEC+ now to meet monthly to manage their production response based on market conditions, set a 500,000-bpd limit on the monthly change through April. Russia is already signaling that Moscow wants OPEC+ production to increase by 500,000 bpd in February. OPEC+'s Joint Technical Committee meets Jan. 3-4, 2021.

A driver of the oil demand recovery narrative has been China, where oil demand in the fourth quarter has topped year ago. There's speculation Beijing is set to sharply increase the allotted crude Chinese refineries will be allowed to purchase.

Although Asian economies have bounced back far quicker from COVID-19 than those in Europe and the United States, a number of analysts have speculated it will take at least until the second half of 2021 before herd immunity is achieved and the pandemic is under control that allows for oil demand to grow materially. Achieving herd immunity varies based on disease but occurs when more than 80% of a population is vaccinated.

Reports indicate more than 45 countries have approved the Pfizer and BioNtech vaccine, while Moderna's vaccine was rolled out Monday after achieving emergency use authorization by the Food and Drug Administration on Friday. The Centers for Disease Control and Prevention indicate 4,624,325 doses of COVID-19 vaccines have been distributed in the United States and 614,117 doses administered as of 9 a.m. EST Monday.

This afternoon, the American Petroleum Institute will provide estimates for the weekly change in commercial oil inventory in the United States, with expectations for crude stocks to have been drawn down by about 3 million barrels (bbl) during the week-ended Dec. 18. Market consensus was mixed on the change in gasoline stocks that took place last week, ranging from a small draw to modest build, with distillate inventory is expected to have declined.

NYMEX February West Texas Intermediate futures settled down $0.95 at $47.02 per bbl Tuesday, with ICE February Brent ending down $0.83 at $50.08 per bbl. NYMEX January ULSD futures settled with a 1.58-cent loss at $1.4616 gallon, with the January RBOB contract ending the session down 2.09 cents at $1.3395 gallon.

Oil futures moved lower despite passage of an $892 billion COVID-19 relief bill that includes $600 stimulus checks and an extension of weekly jobless benefits of $300 for 11 weeks starting in late December. U.S. Treasury Secretary Steven Mnuchin on Monday said stimulus checks could be received as soon as next week.

After stalled for months in Congress, the relief bill tied to omnibus legislation to fund the government through Sept. 30, 2021, looks like a spending blowout, with the nearly 6,000 pages of the legislation including numerous earmarks unrelated to the pandemic and resulting economic damage. In this fifth package of financial relief since the pandemic, Congress appropriated more than $4 trillion in aid and funding in response to the pandemic and the disruptions it has caused to the economy.

Ahead of passage, Atlanta Federal District Bank's GDPNow indicator estimates the U.S. economy would grow at an 11.1% annualized rate in the fourth quarter, while the Bureau of Economic Analysis this morning boosted its U.S. economic growth estimate for the third quarter by 0.3% to 33.4%. This follows a 32.6% contraction in the second quarter when widespread government lockdowns were deployed.

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

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