DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session higher, with all petroleum contracts posting week-on-week gains spurred by easing concerns over the omicron variant of coronavirus that appears to be less lethal compared to the original strain of COVID-19. Softness in the U.S. Dollar Index following a higher-than-expected inflation print for November domestically offered further support for the oil complex.

The oil markets breathed a sigh of relief upon hearing the omicron variant might not be as much of a demand disruptive factor as previously feared. That being said, several downside risks remain for global demand -- weaker domestic air traffic activity in China coupled with potential bankruptcies of property giants Evergrande. On the other hand, soaring U.S. inflation is adding to the bearish sentiment, largely counteracting the above-mentioned phenomena.

Consumer prices in the past 12 months ending November jumped 6.8%, the fastest growth rate in 39 years. One reason U.S. inflation might be hotter than the rest of the world is how countries decided to help their workers in the early days of the pandemic.

After surging 0.9% in the previous month, U.S. consumer price index gained 0.8% in November, lifting the inflation rate over the most recent 12 months to the highest point since 1982 at 6.8%, according to data released this morning by the U.S. Bureau of Labor Statistics.

Last month's increase in consumer prices was once again broad-based, with gains accelerating in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among other contributors. The energy index rose 3.5% over the month, as the gasoline index increased 6.1%. The food index increased 0.7% and prices paid for shelter gained to 0.5%. The index for all items less food and energy rose 4.9% over the last 12 months, while the energy index rose 33.3% over the last year. These changes are the largest 12-month increases in at least 13 years in the respective series.

The fresh data clearly points to accelerated inflationary pressures across the U.S. economy as businesses struggle to balance a rush of consumer demand against shortages of materials and labor.

Last week, Federal Reserve Chairman Jerome Powell said the central bank needs to be ready to respond to the possibility that inflation might not recede in the second half of next year as most forecasts have expected. Powell's hawkish turn last week, alongside his decision to retire the word "transitory" in describing inflation pressures, likely means a faster pace of bond purchase tapering from the central bank next week, as well as earlier-than-expected rate hikes. Powell said he expects policymakers at their Dec. 14-15 meeting to discuss accelerating the timetable for tapering bond purchases, which reached $120 billion a month.

Oil production is also growing in the United States, with the Energy Information Administration on Wednesday reporting the third 100,000 barrels per day (bpd) weekly increase in domestic oil output through Dec. 3 to average 11.7 million bpd. That's the greatest weekly production rate since the depths of U.S. lockdowns in response to the COVID-19 pandemic in April 2020. EIA projects U.S. output to average 11.8 million bpd in 2022, climbing to 12.1 million bpd in the fourth quarter.

At settlement, January West Texas Intermediate futures gained $0.73 to $71.67 barrel (bbl) and ICE February Brent added $0.73 to $75.15 bbl. NYMEX January ULSD futures edged 0.13 cents higher to $2.2516 gallon and January RBOB futures gained to $2.1372 gallon.

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