DTN Oil

Oil Futures Gain as Large States Ease Quarantine Controls

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Crude and refined product futures on the New York Mercantile Exchange and Intercontinental Exchange advanced on Monday, lifting the front-month West Texas Intermediate contract above $52 barrel (bbl) after New York, California and Michigan governors announced partial lifting of quarantine restrictions on businesses and personal mobility, spurred by optimism over ongoing progress in vaccination programs and declining COVID-19 infections.

On the session, the U.S. West Texas Intermediate crude benchmark for March delivery added 50 cents to settle at $52.77 bbl, and the March Brent contract on ICE gained 47 cents to $55.88 bbl. NYMEX February ULSD futures advanced 1.79 cents to $1.5939 gallon and February RBOB futures moved up 1.24 cents for a $1.5611 gallon settlement.

Monday's gains in the oil complex were also spurred by an announcement from Moderna assuring investors the company's COVID-19 vaccine is effective against the United Kingdom's B117 variant that is believed to be more transmittable and deadlier than the original strain. The possible resistance by the aggressive strain to the vaccine could have presented a major demand risk for the markets as several large U.S. states have struggled to reopen their economies.

New York Governor Andrew Cuomo said Monday the state would gradually begin lifting quarantine restrictions in coming days, citing declining COVID-19 caseloads and ongoing progress in vaccinations.

"New York State has vaccinated over 72% of hospital workers thus far. We are in a much better place after the holiday spike," he added.

Similar moves were announced over the weekend by the governors of Michigan and California where restaurants, gyms and other contact-sensitive businesses have been shut down for over a month, likely squeezing states' revenues and pressuring policymakers to change course. The easing of quarantine restrictions came as new coronavirus cases in the United States declined to 129,527 on Sunday, with 7-day average infections remaining below 200 since Jan. 17.

Surprisingly, lifting of mobility restrictions domestically coincides with tightening of travel curbs internationally. President Joe Biden's administration on Sunday moved to restrict travel from the UK, Brazil, and South Africa -- epicenters of the new virus variants. Countries around the world are implementing similar policies to combat the spread as they ramp up immunization efforts.

Separately, the economic calendar during the final week of January could offer some key insights into the U.S. economy at the start of first quarter. On Tuesday, U.S. Conference Board will release its January reading on consumers' confidence in the economy, prevailing business conditions and inflation expectations, with the previous month's reading showing a marginal decline to 79.2 from December's 80.7. Despite political uncertainty this month, consumers remained mostly positive about their near-term economic prospects boosted by expectations for deeper public spending and ongoing vaccination program. On Wednesday (1/27), investors will get a glimpse into "hard data" with the release of December's U.S. durable goods orders that could reveal the extent of the economy's deceleration in the fourth quarter 2020. Durable goods are essentially a subset of overall retail sales in the United States, with last month's reading showing a decline of 0.1% despite the usually busy holiday shopping. Finally, U.S. gross domestic product for the fourth quarter is scheduled to be released on Thursday (1/28) with consensus calling for a 4.1% annualized growth rate after a 33.4% expansion in the third quarter. Based on the data collected thus far by the Atlanta Fed GDPNow forecast is looking for growth annualized at 7.5%, suggesting the market might see a stronger reading this week.

Also, this week the U.S. Federal Reserve will hold its first policy meeting of the year on Tuesday-Wednesday, with expectations calling for the central bank to leave interest rates unchanged near 0% and continue its asset-purchasing program. After much speculation over potential tapering of its Quantitative Easing program, Fed officials took to the airwaves in mid-January to ease a potential taper scare. Fed funds futures are pricing in a 93% chance of no change in Fed rates in 2021.

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

Liubov Georges