DTN Oil

WTI, Brent Spike 5%

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded the Intercontinental Exchange settled the first trading day of the week sharply higher, propelled by expectations for stronger oil demand growth next year after preliminary research suggests the omicron variant of coronavirus might be less of a threat to the global economy than previously thought while Saudi Aramco raised its official selling prices to U.S. and Asian buyers at higher-than-expected premiums, signaling confidence in a global demand recovery at the start of next year.

The United States stands ready to lift travel restrictions enacted in the aftermath of omicron discovery two weeks ago amid fresh data suggesting a highly mutated COVID-19 strain might cause only mild cases of the coronavirus disease, according to Anthony Fauci, chief medical advisor to the president.

In an interview aired Sunday, Fauci sought to ease public concern by saying the severity of the new COVID-19 strain is "a bit encouraging but more data is needed."

As of Monday, the new variant has reached more than 45 countries worldwide but there are no reported deaths related to the new strain, according to official data from the World Health Organization. Domestically, at least 15 states have confirmed Omicron on Sunday, including in the Northeast, the South, the Great Plains and the West Coast. The delta variant of coronavirus remains the dominant variant, making up more than 99% of cases and driving a surge of hospitalizations in the north.

U.S. equities rallied and the dollar index sliced through its global peers, as investors repositioned for a lesser economic impact from the new variant. Goldman Sachs economists, however, still cut their forecasts for U.S. economic growth this and next year, citing risks and uncertainty around the emergence of the omicron variant. Investment bank downgraded 2022 U.S. gross domestic product growth to 3.8%, down from 4.2% previously, and cut its fourth quarter growth outlook 0.4% to 2.9%.

One of the biggest risks posed by the new variant is hotter inflation through further supply chain disruptions, with inflation having reached a 30-year high 6.2% in the 12 months ending in October. Investors now await the release of the Consumer Price Index -- a measure for inflation, with expectations for price pressures in November to have eased monthly to 0.7%.

"The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation," Federal Reserve chairman Jerome Powell wrote in prepared testimony he's set to deliver Tuesday to the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Underpinning Monday's gains in the oil complex is Saudi Aramco's latest price hikes for Asian and U.S. refineries that have signaled the company's confidence in a demand recovery for early next year. The biggest price increases were for Medium and Heavy grades to Asian buyers.

Aramco boosted its Medium grade to Asia by 70 cents to a $3.05 per barrel (bbl) premium over Oman/Dubai and its Heavy grade by 80 cents bbl to a $1.80 bbl premium. Super Light was raised by 30 cents bbl to a $6.15 bbl premium while Extra Light was increased to a $4.50 bbl premium.

For U.S.-bound crudes, Aramco boosted its Extra Light OSP by 60 cents bbl to a $3.50 bbl premium.

Higher premiums can be viewed as a sign of robust demand, supporting last week's decision by the Organization of the Petroleum Exporting Countries and their allies to raise oil production by 400,000 barrels per day (bpd) in January in spite of concerns related to the Omicron variant. OPEC+ said they are ready to reconvene at any point should demand outlook deteriorate due to the new variant.

OPEC+ currently withholds about 3.8 million bpd from the global market, while gradually unwinding those cuts through monthly installment of 400,000 bpd.

On the session, West Texas Intermediate January futures rallied more than $3 bbl to settle at $69.49 bbl and the international benchmark ICE February Brent contract jumped above $73 bbl, up $3.20 bbl on the session. NYMEX RBOB January futures surged 9.04 cents or 5% to $2.0433 gallon and the front-month NYMEX ULSD contract strengthened to $2.1712 gallon.

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

Liubov Georges