DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Intercontinental Exchange gave back earlier gains to finish Friday's session mostly lower. All contracts closed January with hefty gains propelled by optimism over vaccine rollout programs across major economies leading to an improved demand outlook for the second half of the year. A deeper-than-expected production cut from Saudi Arabia and weakness in the U.S. Dollar Index further spurred buying interest.

A combination of bullish factors drove both the U.S. and international crude benchmarks higher for the third consecutive month in January, lifting prompt-month West Texas Intermediate and Brent futures to their highest trades in 11 months during the second week of 2021.

Beginning Feb. 1, Saudi Arabia is set to cut 1 million barrels per day (bpd) from an output rate of 9.119 million bpd through the end of the first quarter, surprising the global oil market with the voluntary reduction after the Organization of the Petroleum Exporting Countries and Russia-led partners on Jan. 5 largely agreed to hold production unchanged. OPEC+ agreed to mostly leave unchanged its production cut of 7.2 million bpd for February and March following a 500,000 bpd boost in January, with Russia allotted 65,000 bpd increases for both months and Kazakhstan 10,000 bpd monthly.

The Saudis had argued in deepening OPEC+ production cuts earlier this month, contending the COVID-19 pandemic would continue to suppress demand early this year, with an increase in output allowing for inventories to build. While largely rebuffed, the Saudis declared their unilateral production cut as "charity to the world," while their decision proved prescient, as COVID infections would subsequently soar.

A host of major economies rolled out vaccination campaigns this month, albeit with a varying degree of success. The United States administered over 27 million doses since the beginning of an immunization campaign on Dec. 14, 2020. The inoculation rate stands at roughly 1.2 million doses per day -- a sharp increase since the first days of the campaign. President Joe Biden expects daily inoculations to pick up pace to 1.5 million doses to meet the goal of 100 million doses within first 100 days of his administration. The European Union, meanwhile, lags far behind its immunization targets, raising concerns over double-dip recession for the 16-nation bloc. Overnight data showed France -- the bloc's second largest economy, posted negative growth in the fourth quarter, down 1.3% after an 18.2% expansion in the third quarter. Germany's economy barely avoided contraction in the final months of the year, posting a mere 0.1% growth.

In the United States, economic activity expanded at a 4% annualized rate from October to December, spurred, in part, by accommodative monetary policy by the Federal Reserve and federal stimulus aid that provided a lifeline to many struggling businesses and households. The Federal Open Market Committee this week left its target interest rates unchanged near 0% and continued with its $120 billion asset-purchase program. Currency traders anticipate the U.S. dollar could see weakness looking ahead should Biden's massive $1.9 trillion stimulus package be strongarmed through Congress, with Republicans arguing the size of the aid package is too large and not targeted to where it's needed.

On Friday, two U.S. pharmaceutical giants, Novavax and Johnson & Johnson, released results from late-stage trials of their coronavirus vaccines. Although efficacy rates proved to be lower compared to RNA-Messenger treatment developed by Pfizer and Moderna, both vaccines still showed better results compared to typical flu vaccines that have 40% to 60% efficacy in blocking the influenza virus. The Food and Drug Administration has indicated it would authorize a vaccine that is at least 50% effective.

On the session, WTI futures for March delivery slipped 14 cents to settle at $52.20 barrel (bbl), while ICE Brent March contract expired 35 cents higher at $55.88 bbl. Brent April futures will assume the front-month position following a $55.04 bbl settlement, posting little change on the session. NYMEX February ULSD futures slipped 0.13 cent to expire at $1.6007 gallon, with the March contract settling near parity. NYMEX RBOB February futures expired 1.04 cents lower at $1.5725 gallon, widening its discount to March futures by more than 1 cent to 1.98 cents, with the March contract settling at $1.5527 gallon.

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