DTN Oil

WASHINGTON (DTN) -- With the ULSD contract the exception, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session lower. The drop came amid surging COVID-19 caseloads in the United States, European Union and China that are expected to rattle economic activity in coming weeks and easing concern over recent supply disruptions in Kazakhstan and Libya as both countries gradually restored their crude oil production.

Libyan oil production rebounded to 1 million barrels per day (bpd) on Monday after maintenance work on a major pipeline carrying crude to Mediterranean export terminals finished ahead of schedule, according to the country's oil minister Mohammad Oun. Furthermore, an agreement with the Petroleum Facilities Guard, a paramilitary group meant to safeguard the country's oil infrastructure, allowed the reopening of oilfields in eastern provinces, adding another 100,000 bpd in current production. Libya's oil production is still about 300,000 bpd below the pre-crisis level. Meanwhile, Bloomberg News reported that oil exports from Libya's major ports will likely remain subdued this week due to bad weather in the Mediterranean Sea.

At the same time, crude production from the Tengizchevroil venture operated by U.S. oil major Chevron in western Kazakhstan is "gradually returning to normal levels," the company said on Sunday after it adjusted output when nationwide protests reached the field. Before the protests, Kazakhstan produced around 1.6 million bpd of crude oil.

The demonstrations, triggered by corruption and a rise in fuel prices, turned into the worst political unrest the country has seen in its 30 years of independence. President Kassym-Jomart Tokayev has described demonstrations as an attempted coup d'etat coordinated by a "single center" and arrested Kazakhstan's former intelligence chief, Karim Massimov, on the charge of high treason.

The economic calendar this week will be governed by inflation data from major global economies, beginning with China's consumer and producer price indices for December scheduled to be released overnight. Market consensus calls for last month's inflation at the consumer and wholesale levels to have eased slightly amid tighter COVID-19 shutdowns and even lockdowns in some instances.

China is battling yet another COVID resurgence, and Beijing on Monday morning was placed on high alert following the discovery of the first omicron variant cluster just weeks ahead of the Winter Olympics China is to host. The discovery of the highly contagious omicron variant of coronavirus poses challenges for China, where the central government has relentlessly pursued a zero-tolerance policy to the detriment of its own economy and fuel demand.

Domestically, the Bureau of Labor Statistics on Wednesday will release U.S. inflation figures that are expected to show consumer prices accelerated above 7% from a year ago in December, with November's Consumer Price Index the fastest annual pace of inflation in three decades. Fueled by federal stimulus, supply chain disruptions, and a tight labor market, inflation in the United States still has room to accelerate in the coming months before abating in the second half of the year, according to economists.

Federal Reserve minutes from their December policy meeting revealed a firmer commitment by central bank officials to tame price increases with rate hikes, with three increases in the federal funds rate expected this year. Analysts at Goldman Sachs believe that the Federal Reserve will likely raise interest rates four times this year and begin the balance sheet runoff process in July, if not sooner.

"With inflation still likely to be far above goal at that point, we no longer believe that the start of runoff will serve as a substitute for a quarterly rate hike. We're still seeing hikes in March, June, and September, and we've added a hike in December," said Goldman's Jan Hatzius.

According to Fed minutes, officials saw the timing of reducing its $8.8 trillion balance sheet as "closer to that of policy-rate liftoff than in the committee's past experience." Last month, the unemployment rate in the United States dipped below 4%, while wages increased, reflecting a tight labor market.

Fed Chief Jerome Powell will likely address those concerns during an appearance before the U.S. Senate Banking Committee on Tuesday, with Lael Brainard -- President Joe Biden's nomination for Fed Vice Chair -- set to follow on Wednesday.

On the session, the front-month West Texas Intermediate futures retreated $0.67 for a $78.23-per-barrel (bbl) settlement, and the international benchmark Brent crude for March delivery declined $0.88 to $80.87 per bbl. NYMEX February RBOB futures fell more than 2 cents to $2.2754 per gallon, while the front-month ULSD contract edged up 0.58 cent to $2.4876 per gallon.

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

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