WTI Settles at 5-Week High on Falling Stocks, Fuels Demand

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange continued to advance Wednesday, supported by rallying equities and a bullish inventory report from the U.S. Energy Information Administration showing a massive drawdown from nationwide petroleum stockpiles amid surging gasoline and diesel consumption.

American motorists are shrugging off swelling COVID-19 infections and climbing gasoline prices during the holidays, with government data reporting demand for gasoline jumped to its highest rate last week since the peak of summer travel. At 9.724 million barrels per day (bpd), U.S. gasoline demand surged more than 19% from the previous week and marked the highest rate since July 30. U.S. gasoline demand remained mostly on par with pre-pandemic levels in the fourth quarter, easing some concerns that Americans would pull back on mobility amid a resurgent virus. The nation is once again in the middle of a surge of new COVID-19 infections. On Monday, U.S. reported more than 440,000 new COVID-19 infections in one day, shattering the record set in January.

Midmorning inventory report was also supportive for the diesel complex, showing stocks declined by 1.7 million barrels (bbl) from the previous week to about 14% below the five-year average. Analysts expected distillates inventories would rise by 200,000 bbl. Surging imports of goods, demand-driven manufacturing activity and strong retail sales have all contributed to burgeoning diesel demand this year that has consistently surpassed pre-pandemic levels.

Crude oil inventories fell for a fifth consecutive week through Dec. 24, down by more than 14 million bbl since late November to about 7% below the five-year average. The bearish part of the report could be found on the production side, with domestic operators ramping up crude output by 200,000 bpd from the previous week to 11.8 million bpd, a 19-month high.

Next, oil traders will shift focus to the Jan. 4 policy meeting among the Organization of the Petroleum Exporting Countries and Russia-led partners when the producer group will decide on production quotas for February. The group is expected to raise output by 400,000 bpd next month -- in line with its July agreement. At its last meeting held on Dec. 2, OPEC+ stuck to its plans to boost output for January despite the spread of the omicron variant and calls from Washington to release more supplies into the market amid surging gas prices. Russian Deputy Prime Minister Alexander Novak previously said OPEC+ wants to provide the market with clear guidance and not deviate from policy, which steers the group to gradually increase production. However, the rapid spread of omicron and renewed quarantine restrictions in some European countries and China could prompt the alliance to hit pause on adding more supplies to the market.

The head of the World Health Organization, Tedros Adhanom Ghebreyesus, said during a conference in Geneva this week that a "tsunami" of COVID-19 cases driven by the omicron variant would pressure hospital systems already on the "brink of collapse."

"I am highly concerned that omicron, being more transmissible, circulating at the same time as delta, is leading to a tsunami of cases," said the WHO director-general on Tuesday. "This is and will continue to put immense pressure on exhausted health workers and health systems on the brink of collapse."

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.

On the session, West Texas Intermediate February futures advanced $0.58 to settle at $76.56 bbl. February Brent crude gained $0.29 for a $79.23 bbl settlement ahead of contract expiration Thursday afternoon (12/30), with March Brent holding near parity. NYMEX January RBOB futures rallied 2.46 cents or 1.1% to $2.2717 gallon, with the next-month February contract expanding its discount to 0.51 cents. January ULSD contract added 0.64 cents to $2.3778 gallon and the February contract maintained its discount at 0.106 cents. Both RBOB and ULSD January contracts expire Friday (12/31) afternoon.

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

Liubov Georges