Oil Rallies on Kazakhstan Turmoil

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended higher in early trade Friday following overnight reports that antigovernment protests in Kazakhstan, the second largest non-OPEC oil producer in OPEC+, disrupted operations at the nation's key oil fields, while investors in the United States are waiting for the last month's employment data for clues on the economy's performance at the end of last year.

In early trade, front-month West Texas Intermediate futures advanced $0.57 to $79.45 per barrel (bbl), and international crude benchmark Brent for March delivery was up $0.67 to $82.69 bbl. NYMEX February RBOB futures surged 2.26 cents to $2.3329 gallon, with the front-month ULSD contract gaining to $2.4939 gallon, up more than 1.51 cents on the session.

WTI, Brent futures rallied to pre-Omicron levels this week amid political turmoil in one of the world's largest oil producer, Kazakhstan, that have disrupted production from the nation's largest oil field, Tengiz. Kazakhstan currently produces around 1.6 million barrels per day (bpd) and was called out at this week's OPEC+ meeting for low compliance with its output quotas. For February, the quota for Kazakhstan is 1.589 million bpd, per the group's decision.

Kazakhstan President Kassym-Jomart Tokayev ordered security forces this morning to "kill without warning" to crush the protests that have paralyzed the former Soviet republic and reportedly left dozens dead.

Further supporting the oil complex, a Bloomberg survey published this week found OPEC added only 90,000 bpd in new production in December against a quota to increase output by 250,000 bpd last month, which the cartel is entitled to under their deal with Russia-led producers. The output has been severely limited by Africa's largest producers Nigeria and Angola that combined underproduced to a tune of 250,000 bpd in recent months.

In outside markets, investors are waiting for the release of U.S. employment report that is expected to show 400,000 new jobs were added by the labor market last month. Hiring is expected to have picked up before the latest surge in Omicron-related infections meaningfully impacted the labor market. The unemployment rate is expected to slip 0.1% to 4.1%, a new pandemic-era low.

ADP's December employment report, which measures the change in employees on private companies' payrolls, said that 807,000 jobs were added last month, significantly above the 400,000 expected by economists.

Economists suggest that notable omicron-related impacts to the monthly labor market data are unlikely to appear until at least the January report. The Labor Department collects data for the monthly jobs reports during the week including the 12th of the month, which may have been too early to capture disturbances from the omicron variant discovered in the U.S. in late November.

"Thought Omicron-related disruptions present some downside risk, they are more likely to be evident in the January employment report," Deutsche Bank economists led by Brett Ryan wrote in a note."

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

Liubov Georges