Oil Futures Rally With Equities; USD Slides From 2-Mo High

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 the front month Brent contract on the Intercontinental Exchange rallied to fresh one-year highs Friday after gaining in every session during the first week of February. Oil climbed alongside equities, bolstered by a downside reversal in the U.S. Dollar Index and gaining on tightening fundamentals, supportive news in the fight against COVID-19 and expectations for additional federal stimulus in the United States.

NYMEX March West Texas Intermediate led the advance on both the session and the week, surging $4.65 or 8.9% since prior Friday to a $56.85 per barrel (bbl) settlement, edging off a better than one-year high at $57.29 on the spot continuous chart.

U.S. oil production stalled at a 10.9 million barrels per day (bpd) 10-week low for the second consecutive week, while Baker Hughes on Friday afternoon reported a modest four-rig increase in the number of rigs drilling for oil in the United States this week. Oil prices are currently well above breakeven, so the limited expansion in new drilling to date lent support.

More to the point, the U.S. dollar made a sharp downside reversal from a two-month high in an outside down session, tumbling 0.488 to 91.032 in index trading. WTI futures marched higher this week despite dollar strength, with Friday's weakness in the greenback amplifying the upside move by the U.S. crude benchmark.

The late session dollar weakness followed this week's actions by Democrats in the U.S. Senate and Friday in the House in passing a budget resolution to allow for passage of the Biden administration's $1.9 trillion stimulus plan with less than 60 votes. Democrats this week refused to consider a Republican counterproposal to the massive stimulus effort, which would be the fifth since the pandemic upended the U.S. economy, and add to the $4.84 trillion in funds so far passed into law. Biden signaled he would push for the full proposal despite earlier comments that he would work with Republicans, which countered with a smaller package, arguing the Biden proposal was untargeted and would accomplish little in helping those most in need while expanding the country's debt load.

A modest 49,000 increase in new jobs in January reported Friday morning by the Bureau of Labor Statistics was in line with expectations, but the report came with downward revisions for November and December totaling 159,000 for the two months. The weakness in Friday's nonfarm payroll report was used by proponents to amplify the need for more stimulus.

WTI futures gained on Brent this week, with the April contract nearing $60 bbl with a $59.79 bbl one-year high on the spot continuous chart, settling up $0.50 on the session and $3.46 or 6.2% on the week. Brent's premium to WTI eased to a $2.50 bbl two-week low Friday, with the narrowing spread realized despite reduced crude production by Saudi Arabia, with the kingdom unilaterally cutting output by 1 million bpd for February and March. The production cut, which the Saudis announced in early January, comes atop of 7.2 million bpd in collective output cuts by OPEC+, which achieved 101% compliance with their agreement in January.

Months of discipline by U.S. refiners in holding processing rates down to account for lost demand amid the COVID-19 induced government lockdowns and resulting economic damage also lent support to product futures this week. So too, did supportive news on vaccine campaigns, which have revved up in recent weeks, providing hope for improved demand as a greater number of individuals are inoculated from the deadly virus.

Centers for Disease Control and Prevention reported 35.2 million vaccines have been administered in the United States, with new cases on the downtrend. The number of individuals vaccinated tops those infected at 26.4 million. Adding to the supportive news, AstraZeneca's COVID-19 vaccine is reported to be effective in preventing infection with a single dose, while Johnson and Johnson late this week indicated it would seek Emergency Authority from the Federal Drug Administration to begin producing its single dose vaccine.

NYMEX March RBOB futures settled up 0.45 cent on the session and 0.768 cent or 4.9% on the week at $1.6493 gallon, paring an advance to a $1.6732 one-year high on the spot continuous chart. March ULSD futures traded at a better than one-year spot high $1.7360 gallon before settling 1.32 cents higher on the session and 11.33 cents or 7.1% on the week at $1.7137 gallon.

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

Brian Milne