Oil Futures Pare Gains Ahead of Stock Data on Firmer USD

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- With risk-on sentiment in financial markets losing some traction, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pared a portion of earlier gains in afternoon trade Tuesday. However, all petroleum contracts settled the session higher, finding buying support from expectations for U.S. crude oil stocks to have again declined sharply during the week ended Dec. 24 amid resurgent gasoline and diesel demand in the final weeks of the year.

On the session, NYMEX February West Texas Intermediate futures gained $0.41 to settle a tad below $76 barrel (bbl) and the front-month Brent crude advanced to $78.94 bbl ahead of contract's expiration Thursday afternoon (12/30). NYMEX March Brent narrowed its discount against the expiring contact to $0.27 bbl. NYMEX January RBOB futures added 1.32 cents for a $2.2471 gallon settlement, with the next-month February contract settling at $2.2460 gallon. January ULSD contract gained 1.79 cents to $2.3714 gallon and the February contract narrowed its discount to 0.10 cents. Both RBOB and ULSD January contracts expire Friday (12/31) afternoon.

Amid lower liquidity during the final week of the year, oil prices remained on the offensive for the second consecutive session despite the uncertainty surrounding omicron's impact on oil demand. Mixed messages from public health and government officials make the outlook even cloudier.

The U.S. Centers for Disease Control and Prevention on Monday shortened the recommended quarantine times for people who have tested positive for COVID-19, while emphasizing that those who are fully vaccinated and boosted may not need to quarantine at all. That came just days after nation's top infections disease expert Dr. Anthony Fauci said the omicron surge is about to get worse and Americans must stay vigilant to stop the spread. Meanwhile, President Joe Biden in a speech Tuesday hardly mentioned the concept of social distancing and revoked a travel ban on eight African countries, including South Africa, where omicron was first found.

The United States is now averaging more than 206,000 new COVID-19 cases each day -- a roughly 147% increase from last month -- according to federal data. Omicron is accounting for about 58.6% of new cases.

Yet, there is little indication Americans are staying away from the roads despite the omicron surge. DTN Refined Fuels Demand data showed gasoline demand in the United States increased 5.5% during the week ended Dec. 24. Total U.S. gasoline demand was down 1.1% compared to the same week in 2019 after being down 3% from 2019 levels in the prior week. The strength in gasoline demand might suggest some Americans have chosen to get behind the wheel for Christmas travel instead of boarding a plane amid widespread flight cancellations.

Tuesday afternoon, oil traders positioned ahead of the weekly release of U.S. inventory data from the American Petroleum Institute on tap for 4:30 p.m. EST, followed by official data from the U.S. Energy Information Administration on Wednesday. Analysts estimate commercial crude oil supplies fell 3.2 million barrels (bbl) for the week ended Dec. 24, with predictions ranging from decreases of 1.5 million bbl to 6 million bbl.

Gasoline stockpiles are expected to have risen by a modest 200,000 bbl from the previous week. Estimates range from a decrease of 2.6 million bbl to an increase of 2.5 million bbl.

Stocks of distillates, meanwhile, are expected to have increased by 200,000 bbl from the previous week. Total distillate fuel oil stocks are currently 5% below the three-year average and 7.4% below the five-year average.

Refinery run rates likely fell by 0.2% from the previous week to 89.4% of capacity.

In Europe, the United Kingdom, France, and Italy have all set new record highs for daily COVID-19 cases since the start of the pandemic. UK officials showed little appetite for new COVID shutdowns, saying Monday there would not be any new restrictions before the end of 2021 as health authorities await more data on whether hospitals can cope with an omicron wave of infections. The daily count of new COVID-19 infections in England is at the highest since March at 122,189, although hospitalizations have not yet shown a marked increase.

The World Health Organization, meanwhile, cautioned it could take "several weeks" to assess the severity of the newly discovered omicron variant. Oil traders will closely monitor any new developments of the omicron spread and potential implications for global oil demand at the start of the new year.

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

Liubov Georges