DTN Oil

WASHINGTON (DTN) -- Nearby-month delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session with steep losses. The losses were triggered by growing concerns that a rapid spread of the COVID omicron variant across several major oil-consuming economies would trigger an avalanche of quarantine closures this winter, undermining mobility and economic activity at the start of next year.

The omicron variant of coronavirus, first detected in the United States only 17 days ago, has now been found in at least 40 states and is quickly overtaking delta as a dominant strain, according to public health officials. Sharply higher COVID-19 infections and hospitalizations this week have prompted a new wave of cancellations and disruptions as the country prepares for another pandemic holiday season. The U.S. is now averaging 118,717 new COVID-19 cases each day -- 40% higher than a month ago, according to data aggregated by Johns Hopkins University data. Some colleges and universities are moving to online classes, while multiple indoor entertainment venues are canceling performances and professional sports leagues are postponing games.

Oil traders closely monitor unfolding developments around the omicron variant as it can affect mobility trends and fuel demand in major oil consuming economies, such as the U.S. The International Energy Agency revised lower demand expectations for both 2021 and 2022 by 100,000 barrels per day (bpd) in its December Oil Market Report released early this week. So far, the new variant has had limited effect on U.S. fuel consumption, with the latest government data showing a record-high 23.191 million of fuel supplied to the U.S. market during the week ended Dec. 10. Demand for motor gasoline shot up by 509,000 bpd or 5.6% to 9.472 million bpd -- the highest since the week ended Oct. 29, according to the Energy Information Administration. Distillate fuels supplied to the U.S. market spiked 1.318 million bpd or 36% from the prior week to 4.896 million bpd, the greatest weekly implied demand rate since late January 2003 when it was 4.926 million bpd, EIA said. Total petroleum stockpiles declined 15.9 million barrels in the week ended Dec. 10, with 4.6 million bbl of that drop realized in crude stockpiles alone. At 428.3 million bbl, commercial crude oil inventories remain about 7% below the five-year average.

In outside markets, U.S. equities slumped on Friday after a two-day rally spurred by the decision of Federal Reserve Open Market Committee to speed up bond-buying programs, while signaling three interest rate hikes next year. The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The change in policy follows data from November showing the consumer price index spiked to 6.8% over the 12-month period, a 39-year high, while wholesale prices posted the highest year-on-year gain on record at 9.6%. The Federal Reserve also noted the marked improvement in the labor market, with unemployment claims remaining near 52-year low 206,000 as of Dec. 11.

U.S. dollar index reversed higher in afternoon trade Friday after briefly pausing on a two-day pullback from a monthly high 96.895. At last look, the greenback traded near 96.560, up 0.57% against basket of foreign currencies. The Bank of England announced on Thursday that it would hike interest rates for the first time since the coronavirus pandemic, while warning that inflation was likely to hit 6% in April -- three times its target level. U.K. consumer price inflation surged to 5.1% in November, its highest level in more than a decade, leaving the economy at risk of stagflation, a toxic mix of weak growth and rising prices. The Bank of England said it expects prices to rise further.

At settlement, NYMEX January West Texas Intermediate futures declined $1.52 to $70.86 per barrel (bbl), with ICE February Brent futures falling to $73.52 per bbl, down $1.50 bbl. NYMEX January ULSD futures plunged 4.64 cents or 1.7% to $2.2199 gallon, with the January RBOB futures contract falling more than 5.5 cents to $2.1217 per gallon.

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