Crude Futures Drop Back From 2-Month Highs After 2-Day Rally

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 settled Thursday's session mostly lower, sending the U.S. crude benchmark to just above $82 per barrel (bbl). Deepening evidence of omicron-led demand destruction in the domestic gasoline market along with mixed economic data in the United States overshadowed recent production shortfalls from several OPEC+ members.

On the session, West Texas Intermediate futures for February delivery declined $0.52 to $82.12 per bbl, with the contract falling below $82 per bbl post-settlement, and ICE March Brent crude slipped to $84.47 per bbl, down $0.20 from Wednesday's settlement. NYMEX February RBOB futures softened 0.67 cent to $2.3841 gallon, and the front-month ULSD contract finished the session 1.43 cents higher at $2.6085 gallon, supported by still robust domestic demand for middle distillates.

Thursday's mostly lower settlements were underpinned by growing concern over omicron's impact on fuel demand not only in the United States but also in the large economies of China and the European Union. Around 20 million people in China's northeastern coastal city of Dalian were placed under lockdown orders after a single individual arriving from the port of Tianjin contracted the omicron variant. It remains unclear how the nation's "zero COVID policy" will fare against a highly transmittable strain of COVID-19 in light of the coming Olympics games.

Domestically, economic activity and mobility trends took a hard hit from the record-breaking surge in new COVID infections, with nationwide use of motor gasoline dropping last week to the lowest since February 2021. Commercial gasoline stockpiles built by more than 18 million bbl since Christmas.

Further evidence of omicron's disruption to the economy could be found in the Federal Reserve's Beige Book released Wednesday afternoon, which showed an abrupt pullback in leisure travel, hotel occupancy and patronage at restaurants as the number of new COVID-19 cases grew rapidly in recent weeks. The report is based on information gathered through Jan. 3 before the record-breaking surge in omicron-led infections and hospitalizations, which will likely hold back economic activity even further.

Against this backdrop, weekly unemployment claims in the United States unexpectedly increased during the week ended Jan. 8 to 230,000, up 23,000 from the previous week. Further details of the report showed the nation's most populous states of California, Texas and Florida, were the largest contributors to last week's rise in first-time unemployment claims.

The larger-than-expected increase in claim filings comes amid an Omicron-led spike in COVID-19 infections that has been sweeping through the country like wildfire in recent weeks, leading to widespread worker absenteeism and sick leaves. As of Wednesday, more than 145,900 people were in U.S. hospitals with COVID-19 -- a number that surpasses the previous peak from mid-January 2021 and is almost twice what it was two weeks ago, according to data from the Department of Health and Human Services.

Meanwhile, inflation has shown some early signs of easing at the start of 2022, with the Producer Price Index for final demand having increased 0.2% in December after the index advanced 1% in November and 0.6% in October. The slowdown in price increases at the wholesale level was realized with declines in energy, down 3.3% in December, and only the second monthly decrease in 2021 with the previous decline in April. Food costs also slipped 0.4% last month, the only decline in 2021.

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

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

Liubov Georges