DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange edged higher in early trade Wednesday after the American Petroleum Institute reported a larger-than-expected drop in U.S. commercial crude oil inventories during the final week of 2021 accompanied with massive builds in gasoline and distillates fuel supplies amid early signs of Omicron-led destruction to domestic fuel demand.

DTN Refined Fuels Demand data showed gasoline demand in the United States slumped 18.4% from the previous week during the final week of 2021, while sliding more than 9% below pre-pandemic level in 2019. The fresh data might suggest that some Americans have begun to pullback on driving amid a fourth wave of the pandemic that is being led by a highly contagious Omicron variant of coronavirus.

On Monday, United States recorded more than one million new COVID-19 infections, a global record high during the pandemic declared in March 2020. Exponential growth offers more evidence that Omicron is better at infecting people who have been previously vaccinated or infected with earlier strains of the SARS-2 virus, which is giving it a larger pool of people to infect.

A similar trend is found in diesel consumption, with DTN's Refined Fuels Demand data showing demand for the middle of the barrel fuel declining more than 20% during the week-ending Dec. 31, although up 6% relative to the same week in 2019. Continued rebound in domestic manufacturing, surging imports and popularity of online shopping have offered solid support for diesel demand throughout the pandemic. From January through November 2021, DTN Refined Fuels Demand data shows on-road No.2 U.S. diesel demand averaging 7% above 2020 levels and 2% above 2019 levels.

The API report released late Tuesday was bearish for refined fuels, showing gasoline stockpiles surged 7.061 million barrels (bbl) in the final week of 2021, nearly seven times estimates for stocks to have increased by 1.1 million bbl. The data also showed distillate inventories jumped 4.38 million bbl, well above calls for a gain of 400,000 bbl.

Commercial crude oil inventories tumbled 6.432 million bbl during the week ended Dec. 31, more than twice calls for a 3 million bbl drop. If realized in Energy Information Administration data to be released later this morning, the draw would press domestic crude oil inventories to about 10% below the five-year average. Commercial crude oil inventories sustained a destocking pattern since the final week of November 2021.

Separately, overnight data from Eurozone showed economic activity across the 19-nation bloc dropped to a nine-month low 53.3 reading in December that, while still showing growth, resumes a downtrend seen at the start of last year due to renewed COVID shutdowns. In Germany, where measures to combat COVID-19 have been more stringent than other euro area countries, levels of economic activity fell below 50, indicating contraction. The downturn in the services sector last month is what stands out the most out, with consumers clearly pulling back on discretionary spending and social activity during the holiday season.

"The accelerated expansion in output we saw in November unfortunately turned out to be brief. Amid a resurgence of COVID-19 infections across the euro area, growth slowed to the weakest since March in December. It is clear that risks to the economy are now greater as tighter restrictions to curb the spread of COVID-19 are more likely than they have been recently," said Joe Hayes, senior economist at IHS Markit.

In early trade, West Texas Intermediate February futures gained $0.30 to $77.28 bbl, and March Brent added $0.34 to $80.35 bbl. NYMEX February RBOB futures edged higher to $2.2779 gallon, with the front-month ULSD contract gaining to $2.4211 gallon, 1.20 cents higher from Tuesday's settlement.

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