NYMEX Dec. WTI Expires at 7-Week Low Amid Renewed Demand Fears

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Extending losses into a fourth consecutive week, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell more than 3% on Friday. Futures were under pressure from expanded COVID-19 restrictions across the European Union, where infections have surged to their highest level since the start of the pandemic, as well as strength in the U.S. dollar index amid mounting concerns over derailed global growth.

COVID-19 lockdowns returned to the headlines this week with a vengeance as Europe struggles to contain rampaging cases the of the virus and China tightens quarantine travel restrictions, hammering the energy complex harder than anytime over the past three months. Austria announced a nationwide lockdown starting Monday, Nov. 22, becoming the first EU country to take such a measure in the face of the COVID-19 resurgence. The announcement came days after Chancellor Alexander Schellenberg introduced a targeted lockdown for the unvaccinated, a measure that was widely expected to be insufficient to contain viral spread. Additionally, Germany, the EU's largest economy, next week will introduce tighter COVID-19 restrictions on unvaccinated citizens, with most regions already barring unvaccinated citizens from public places such as restaurants and concert halls.

The World Health Organization estimates coronavirus deaths in Europe jumped 5% this week, making it the only region in the world where COVID-19 deaths increased.

The fourth wave of COVID-19 restrictions will likely bite a chunk of Europe's fuel demand heading into the end of the year, with traffic congestion in large European cities already seen on the decline in recent days. Recently, the Organization of the Petroleum Exporting Countries cut its global demand projection for the fourth quarter by 330,000 barrels per day (bpd), citing resurgent pandemic as one of the reasons behind the downgrade.

Against these headwinds, U.S. President Biden reportedly works behind the scenes to rally a coalition of major oil-consuming countries, including China, India and Japan, to release supply from their petroleum oil reserves ahead of winter months. Earlier this month, the Biden Administration was reportedly considering the idea of a unilateral release of oil from U.S. Strategic Petroleum Reserves, a move that would likely have only a limited impact on market.

The oil complex came under selling pressure on Thursday after reports emerged that China is carrying out a second public auction of state crude oil reserves although no specific details on the size of that sale were released. China rolled out its first release from reserves in September, which was equal to roughly 7.38 million barrels (bbl). Analysts estimate the second SPR release will likely match the sale from two months ago. Energy Aspects estimates China's state oil reserves hold about 220 million bbl of crude oil, equivalent to 15 days of demand.

Further weighing on the complex, Baker Hughes reported on Friday that the number of active oil-directed rigs in the United States increased for a fourth consecutive week, up seven to 461 as of Friday, the highest since the first week of April 2020. There are 230 more rigs drilling for oil now than during the comparable week a year ago.

Following an increase of 56 in the third quarter, the count so far in the fourth quarter is up by 40 rigs.

In its latest Monthly Statistical Report, the American Petroleum Institute reports U.S. crude oil production rebounded to 11.4 million bpd in October following September figures that were impacted by prolonged Gulf Coast shut-ins in the wake of Hurricane Ida.

The greenback rallied again Friday as global equities came under pressure from mounting concerns about new coronavirus curbs in Europe. The dollar index, which measures the U.S. currency against a basket of foreign currencies, rose to a high today of 96.245.

NYMEX West Texas Intermediate futures for December delivery expired at $76.10 per bbl, down $2.91 on a session, and the January contract narrowed its discount to $0.16 per bbl. ICE January Brent crude declined below $79 per bbl, down $2.35 on the session. NYMEX RBOB December futures plummeted 8.24 cents to $2.2119 gallon, and front-month NYMEX ULSD declined 9.06 cents or 4% to $2.2934 gallon.

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

Liubov Georges