Oil Futures Fall to 2-Week Lows on Omicron Demand Concerns

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the Brent contract next to expire on the Intercontinental Exchange closed at two-week or better lows Monday with January West Texas Intermediate futures expiring this afternoon at a discount to the February contract, as expectations for global oil supply to outpace demand during the first half of 2022 are exacerbated by travel restrictions in the face of surging COVID infections.

NYMEX January WTI futures expired down $2.63 at $68.23 barrel (bbl), paring a loss to $66.04 bbl on the session, with the February WTI contract settling at $68.61 after a $2.11 decline since Friday. ICE February Brent futures settled down $2 at $71.52 bbl, a $0.05 discount to the March contract, with the prompt Brent contract having fallen to a $69.28 session low.

NYMEX January ULSD futures settled down 4.69 cents at $2.1730 gallon, pushing off a $2.1085 low printed earlier in the session, with the February contract ending at a 41-point discount to nearest delivery. NYMEX January RBOB futures pared a loss to $2.0245 gallon with a $2.09 gallon settlement, down 3.17 cents on the session, while ending at a 1.14 cents premium to February delivery in the seasonally backwardated market.

A spike in COVID infections in Europe has prompted new restrictions on nonessential business activity including curfews in Ireland, while France is prohibiting nonessential travel to Britain where the omicron variant is now the dominant COVID strain. The recovery in air travel, already curtailed by a slow return in business travel, is the biggest demand risk.

U.S. President Joe Biden is expected to deliver a speech Tuesday, the first day of winter, in which the president is expected to layout preparations his administration is making to contend with an expected winter surge in COVID infections. The omicron variant has proven more easily transmissible then the fast-moving delta variant and has infected individuals that have already been vaccinated. Moderna on Monday said a booster dose of its vaccine has proven to significantly increase an individual's antibody levels in protecting against omicron, joining Pfizer's booster dose in countering the new variant.

A report from the Imperial College COVID-19 response team issued Dec. 16 said the growth rate for omicron doubling times is less than 2.5 days, while the team found "strong evidence of immune evasion" both from natural infection and vaccine-induced protection. The risk of natural reinfection from omicron is 5.41 times higher than for the delta variant, which explains the rapidity of new cases in Europe.

While the infection rate is far higher than previous COVID variants, omicron has led to far fewer fatalities. Moreover, rapidly spreading infections suggest a quicker end to the pandemic.

Early Monday, The Conference Board released their Leading Economic Indicators Index that increased a more-than-expected 1.1% in November, with the index a compilation of ten components fused to forecast economic conditions six months out. In November, eight of the ten components that make up the LEI increased, "suggesting the current economic expansion will continue into the first half of 2022," said Ataman Ozyildirim, senior director of Economic Research at The Conference Board. "Inflation and continuing supply chain disruptions, as well as a resurgence of COVID-19, pose risks to GDP growth in 2022."

The Conference Board forecasts real U.S. Gross Domestic Product growth for the fourth quarter at 6.5% annualized, before moderating to a 2.2% annualized growth rate in the first quarter 2022.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne