DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session mostly lower, with both U.S. and international crude benchmarks registering steep weekly losses. The losses came amid a one-two punch with the winter season resurgence in COVID-19 infections across the Northern Hemisphere and concerns over the emergence of a highly mutated omicron variant of coronavirus, with both developments potentially derailing the recovery in global jet fuel demand.

Additionally, the Organization of the Petroleum Exporting Countries and Russia-led partners decided this week to release more supplies into the market early next year despite clear signals of near-term demand weakness. OPEC+'s technical panel estimated oil market is rapidly moving into oversupply next year, with gains in production seen outpacing demand by 2 million barrels per day (bpd) next month and widening further to 3.4 million bpd in February. In March, OPEC+ expects a surplus on the global market to reach a whopping 3.8 million bpd.

Nevertheless, the group agreed Thursday, Dec. 2, to raise production quotas by 400,000 bpd as planned, shrugging off market jitters over the emergence of Omicron and U.S.-coordinated releases from strategic petroleum reserves in a handful of countries. OPEC+'s official communique said it stood ready to reconvene "pending further developments of the pandemic and continue to monitor the market closely and make immediate adjustments if required."

Concerns over the rapid spread of the omicron variant of coronavirus that first was detected in South Africa and have now spread to more than 30 countries worldwide continued to dominate the media airwaves on Friday. Latest reports suggest Omicron is spreading twice as fast as other variants in the country of its origin. It remains unclear whether COVID-19 vaccines are as affective against this variant as they were with now dominant Delta strain. Scientists still don't know enough about the new strain, including how it affects vulnerable population or whether it is less lethal compared to other variants.

The consensus in the oil industry so far is that international air travel will feel an immediate impact from renewed travel controls imposed by the governments of European Union, United States, and Asia. After showing growth early in the fourth quarter, a long-awaited recovery in jet fuel demand has now been pushed further in 2022 as consumers begin to pull back on international air travel. As this pocket of demand evaporates, the oil market is left with a big hole that is seen rapidly expanding with more non-OPEC supplies hitting the market. S&P Platts Analytics estimates global oil demand would likely contract by a sharp 1.6 million bpd from the fourth quarter to the first quarter of 2022 on a combination of seasonal weakness and the winter resurgence of COVID-19 infections.

Separately, U.S. Labor Department reported on Friday the economy added a disappointing 210,000 new jobs in November compared with expectations for at least 500,000 new positions opened. The unemployment rate, meanwhile, dropped more than expected to 4.2% from 4.6% -- the lowest level since the pandemic began.

The labor market had been gaining momentum after a Delta-induced slowdown over the summer, but the latest figure represents a significant drop from October's job growth that was upwardly revised to 546,000. There are still about 3.9 million fewer jobs than there in February 2020 before the pandemic began.

Omicron wouldn't have affected November's employment report because the government gathered the data for Friday's report before that variant emerged. But fears surrounding the new variant could exert an impact on the job market in future months.

Other economic data released this week wasn't as bearish, showing business activity in manufacturing and service sectors continued to expand in November, according to data from the Institute of Supply Management. ISM Services Index spiked 2.4% last month to an all-time high reading of 69.1%, led by strong consumer demand.

"Demand continues to outpace supply that has been impacted by capacity constraints, shortages of labor and materials, and logistical challenges. This has also caused demand-pull inflation that is affecting overall business conditions," said Anthony Nieves, Chair of the Institute for Supply Management Services Business Survey Committee.

On the session, West Texas Intermediate January futures slipped $0.24 to settle at $66.26 per barrel (bbl) and the international benchmark ICE February Brent contract posted a gain of $0.21 for a $69.88-per-bbl settlement. NYMEX RBOB January futures moved down 1.48 cents to $1.9529 per gallon, and the front-month NYMEX ULSD contract weakened 0.5 cent to $2.0984 gallon.

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