DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange settled at one-month highs and the prompt-month Brent contract on the Intercontinental Exchange ended Wednesday's session at a two-week high. The gains followed U.S. supply data released midmorning Wednesday showing a larger-than-expected drawdown in commercial crude stocks, adding bullish momentum for West Texas Intermediate.

U.S.-based oil futures closed Wednesday's session at the highest point since before Thanksgiving on Nov. 24, with the futures contracts selling off post-Thanksgiving following the Nov. 25 announcement of the new, highly transmissible COVID omicron variant in South Africa. The fast-moving, and at times vaccine-resistant omicron variant, which on Monday the World Health Organization said has been detected in 43 states and nearly 90 countries, spurred worry over global oil demand to press oil and oil product prices sharply lower in selling that extended into early December.

COVID cases were already climbing in Europe, with omicron, later found to spread 5.41 times faster than the delta variant by Imperial College COVID-19 response team according to their Dec. 16 study, spurred the International Energy Agency to cut their world oil demand projections for both this year and 2022 by 100,000 barrels per day (bpd) on expectations for lower air travel.

So far, expectations for less air travel are not being realized. According to flightradar24, which tracks the number of commercial flights globally, air travel continues to recover, though it remains below the 2019 pace. On a seven-day moving average basis through Tuesday, Dec. 21, flightradar24 shows the total number of flights at 176,503, up 18.8% from the comparable period in 2020 and 5.4% lower than the same seven-day period in 2019. Moreover, the seven-day moving average continues to trend higher, with 183,362 flights on Tuesday.

While more transmissible, omicron has so far shown to be far milder than previous variants, while cases in South Africa have dropped sharply in recent days. According to the Associated Press, after reaching a high of nearly 27,000 new cases in Gauteng province, South Africa's largest province with a population of 16 million, on Dec. 16, cases dropped to 15,424 on Tuesday. While experts offer caution on reading too much into the data, some optimism was gleaned in that the pandemic is moving closer to conclusion. A characteristic of pandemics is subsequent strains of the virus become more transmissible but less deadly as they replace the previous strain before finally petering out. On Monday, the Centers for Disease Control and Prevention said the omicron variant made up 73% of new cases in the United States.

Oil futures also found bullish news in weekly supply data from the Energy Information Administration showing a larger-than-expected 4.7 million-barrel (bbl) drawdown in commercial crude oil inventories for the week ended Dec. 17, while domestic production dropped back 100,000 bpd to 11.6 million bpd. At 423.6 million bbl, commercial crude stocks are at the lowest point in the fourth quarter while 37.2 million bpd or 8.1% below the three-year average, the widest gulf since the end of the first quarter.

Crude inputs last week increased to a 15.818 million bpd four-month high, with the ramp-up in inputs occurring at Gulf Coast refineries, where refiners processed 154,000 bpd more crude oil on the week at 8.546 million bpd. Refiners in Texas and Louisiana are incentivized to reduce crude on-hand before year-end when ad valorem taxes are applied to end-year stocks.

NYMEX February WTI futures rallied $1.64 to a $72.26 four-week high settlement on the spot continuous chart but remains down $5.63 or 7.2% from the Nov. 24 settlement. A weaker U.S. dollar, which fell 0.44% to 96.059 in index trading, lent upside support for the WTI contract.

NYMEX January ULSD futures settled 5 cents higher at $2.3078 per gallon, while down 7.52 cents or 3.2% on a spot continuous basis from Nov. 24. January RBOB futures gained 1.58 cents with a $2.1680-per-gallon settlement and is 15.17 cents or 6.5% below the Nov. 24 settlement on a spot continuous basis.

ICE February Brent futures settled up $1.31 at a $75.29-per-bbl two-week high and is $6.96 or 8.5% lower than its Nov. 24 settlement on a spot continuous basis.

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

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