DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange eased early Wednesday, as lost refining output over the Christmas Day weekend is seen as a short-term event while ongoing travel disruptions mar pre-holiday expectations for strong demand.

Numerous run cuts and outages at Gulf Coast refineries over the weekend as temperatures fell well-below freezing lifted basis values in physical trading; however the duration of plant outages is expected to be relatively short overall. The current situation is far different than in February 2021 when Winter Storm Uri brought sub-zero temperatures and an ice storm to Gulf Coast refineries over a four-day period, freezing pipes and damaging equipment. This season, Winter Storm Elliot caused as many as 20 refineries to shut or reduce runs, but the number of days with below-normal temperatures was far shorter, and the storm did not trigger widespread power outages, allowing for a quicker recovery. In contrast, Winter Storm Uri caused nearly 10 million people to lose power in the United States and Mexico, upending refining and petrochemical operations in Texas, Louisiana, and neighboring states.

Winter Storm Elliott snarled road traffic across large swaths of the country, including upstate New York, which has a long history of contending with low temperatures and heavy snowfall. This year however, the winter storm caused dozens of deaths in the Buffalo region, where the military was brought in to keep people off the roads. Some are calling Elliott the storm of the century.

Disruptions in air travel were also significant, with estimates that as many as 20,000 flights were canceled over the Christmas Day weekend. FlightAware indicates there were 3,210 flight cancellations within, into, or out of the United States on Tuesday, and 2,749 more cancellations Wednesday. Ahead of the storm, American Automobile Association projected 7.2 million people in the United States would fly over the holiday period, which runs from Dec. 23 to Jan. 2, a 14% increase from last year. That expectation is unlikely to be realized.

Also muting price reaction in futures trading is a reassessment of demand expectations from China following its sudden about-face on its zero-COVID policy earlier this month. Oil futures rallied as Beijing ended strict restrictions on travel and isolation, which had suppressed economic activity and demand for oil. However, widespread infections and deaths, which are seen widely underreported by Beijing, and a reluctance by many Chinese to quickly reengage in society have prompted a more cautious approach on when China's economy would fully reopen and drive demand for commodities.

Just ahead of 8 a.m. EST, NYMEX February West Texas Intermediate were down $0.30 near $79.20 barrel (bbl), with the February Brent contract on ICE nearly $0.50 lower at $83.85 bbl ahead of expiration Thursday. March Brent is trading at a $0.65 premium to the expiring contract. NYMEX January ULSD futures were $0.0442 lower at $3.3095 gallon ahead of expiration on Friday, with the February contract trading at a $0.0430 discount in the backwardated market. NYMEX January RBOB futures were fractionally lower near $2.3585 gallon following a $0.0234 loss Tuesday, with February delivery trading about 25 points above the January contract.

Brian Milne can be reached at brian.milne@dtn.com