DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied at the start of a new trading week, sending the international crude benchmark above $83 barrel (bbl) after Saudi Aramco raised its official selling prices for Asian and European buyers by larger-than-expected margins for December deliveries, indicating robust demand for its crude as the winter heating season in the Northern Hemisphere begins. In addition, the United States lifted its nearly 20-month ban on international travelers, which is expected to further boost demand for middle distillates.

On Monday, the United States scrapped its pandemic-era travel restrictions on vaccinated visitors from more than 30 countries, including the European Union, China, Japan and Southeast Asia. Airlines have reported an immediate surge for inbound flight searches, with United Airlines expecting 50% more international passengers as early as this week. United Airlines will fly 69% of its 2019 international schedule next month, according to representative, up from 63% in November, and its trans-Atlantic schedule is expected to be 87% restored in December. American Airlines' international capacity for November and December is set to be more than double that of a year ago and down 28% from 2019.

Oil traders will look for signs of rebounding jet fuel demand this month, with U.S. consumption of jet fuels still trending about 15% lower than the pre-pandemic level. In its latest inventory report, the U.S. Energy Information Administration said jet fuel demand surged to 1.68 million barrels per day (bpd) during the final week of October, up 231,000 bpd from the previous week to the highest weekly rate since the pandemic shut the economy down in March 2020. On a four-week average basis, U.S. jet fuel consumption is about 45% higher compared to the same four-week period last year.

Separately, top oil exporter Saudi Aramco raised its official selling prices into Asia by more than double in December versus November, exceeding market expectations and sending a bullish signal to the markets. Aramco's differentials for the flagship Arab Light grade were hiked by $1.40 barrel (bbl) versus Dubai/DME Oman to $2.70 bbl, while Arab Medium was increased to $2.35 bbl.

Traders mostly expected a more modest increase between $0.50 and $1 bbl. What makes it even more bullish is the Saudi price move in December follows two consecutive months of OSP cuts, when Aramco slashed prices between $1.40 bbl and $1.70 bbl for Asian crude loadings.

In Europe, Northwest Europe differentials versus ICE Brent were increased by $1 bbl to $3.30 bbl, with the largest hikes applied to Extra Light and Light.

Refiners in Northwest Europe and Asia are reportedly seeking more crude for heating supplies as cold weather approaches, which, in turn, has bumped up prices for Middle East light. Lighter grades like Arab Light yield more naphtha and kerosene. As for weather forecasts, two strong cold waves will hit most of China and Korea in the next ten days. An early start to winter has sent temperatures plummeting in cities like Beijing and Seoul, prompting the beginning of centralized heating programs this year ahead of the normal schedule.

The price move also comes after the Organization of the Petroleum Exporting Countries and Russia-led partners last week agreed to keep measured production increases in effect, boosting supplies by 400,00 bpd next month. With OPEC+ sticking to its output strategy, analysts project an undersupplied market until the end of the year before global oil stocks again start building. At a news conference following the announcement, Saudi oil minister Prince Abdul-Aziz Bin Salman said, "Q1 2022 will also see massive stock builds. We believe that gradually increasing oil output is the best course of action. Projected 500,000 bpd in additional fuel demand from gas to oil switch has already occurred."

This sentiment was echoed in the comments from United Arab Emirates Energy Minister Suhail Al Mazrouei, who stressed a rebalancing of the global oil market is projected for the first and second quarters.

Near 7:30 a.m. EST, NYMEX West Texas Intermediate for December delivery gained $0.51 to trade at $81.79 bbl, and the ICE January Brent contract added $0.55 to $83.26 bbl. NYMEX RBOB December futures advanced 0.93 cents to $2.3302 gallon and front-month NYMEX ULSD futures gained 1.13 cents to $2.4681 gallon.

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