Oil Futures Rally to Fresh Highs

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Along with rallying equities and a sagging U.S. dollar index, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended gains into early trade Tuesday amid renewed optimism that the winter wave of omicron-led COVID infections would have a short-lived impact on the global economy as governments mostly resist new quarantine restrictions and consumers have not pulled backed on spending despite the resurgent pandemic.

Supporting the sentiment, the U.S. Centers for Disease Control and Prevention on Monday shortened the recommended quarantine times for the people that have tested positive for COVID-19 from ten days to five days, followed by five days of wearing a mask around others. People who are fully vaccinated and boosted may not need to quarantine at all, the CDC added.

"The change is motivated by science demonstrating that the majority of SARS-CoV-2 transmission occurs early in the course of illness, generally in the one to two days prior to onset of symptoms and the two to three days after," said CDC.

The change in CDC guidelines came after several U.S. airlines were forced to cancel nearly 2,000 flights over the Christmas weekend due to staffing shortages, arguing that the lengthy quarantine times were to blame for the staffing problems. Despite a higher transmission rate, the Omicron variant has so far proved to have milder symptoms compared to the original strain of COVID-19 and the Delta variant.

United Kingdom said on Monday there would not be any new COVID-19 restrictions in England 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 that it could take "several weeks" to assess the severity of the newly discovered Omicron variant. Oil traders will closely monitor any new developments on the Omicron spread and potential implications for global oil demand at the start of the new year.

Oil and equity shares were boosted on Monday by data released from Mastercard's SpendingPulse report that found holiday sales from Nov. 1 through Dec. 24 surged 8.5% year-on-year -- the fastest pace in 17 years.

"Consumers splurged throughout the season, with apparel and department stores experiencing strong growth as shoppers sought to put their best dressed foot forward," said Steve Sadove, senior advisor for Mastercard and former CEO and Chairman of Saks Incorporated.

Strong sales came despite ongoing headwinds including supply chain disruptions and growing inflationary pressures joined by the spread of Omicron in December. Investors appear to fully embrace the so-called "Santa Claus" rally that refers to the final five trading days of the current year and first two trading days of the new year when equities have traditionally rallied.

This week, oil traders will also monitor the restart of Iranian nuclear talks in Vienna, with early indications suggesting the hardline government in Tehran doubling down on its demands to remove all sanctions before reaching a new comprehensive agreement.

"The most important issue for us is to reach a point where, firstly, Iranian oil can be sold easily and without hindrance," Foreign Minister Hossein Amirabdollahian was quoted as saying by state media. "The money from the oil is to be deposited as foreign currency in Iranian banks -- so we can enjoy all the economic benefits stipulated in [the] Joint Comprehensive Plan of Action."

Previous rounds saw similar demands made by Tehran that went unfulfilled.

U.S. sanctions have slashed Iran's oil exports -- the country's main revenue source -- from about 2.8 million bpd in 2018 to as low as 200,000 bpd in late 2020.

Near 7:30 a.m. ET, NYMEX February West Texas Intermediate futures advanced $1.11 to $76.69 per barrel (bbl), and the front-month Brent crude rallied $1 to near $79.60 bbl. NYMEX January RBOB futures surged 2.81 cents or 1.2% to $2.2620 gallon and the January ULSD contract rallied 3.49 cents to $2.3884 gallon.

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

Liubov Georges