DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange settled mixed, and Brent crude on the Intercontinental Exchange declined, with the February Brent contract expiring $1 lower, extending losses for a second session as China's surge in COVID cases heightened concern over economic growth and demand for oil.

While initially greeted with enthusiasm by the market, anticipating a surge in demand for commodities, Beijing's surprise decision to end its zero-COVID policy in December is now heightening worry China might again infect the world as travel restrictions end. These concerns were highlighted when half of the travelers on two planes from China to Milan, Italy, tested positive for COVID this week. In response, and due to the lack of transparency by Beijing on COVID infections and deaths, the United States on Wednesday imposed restrictions on travelers departing from China, Hong Kong or Macau. Taking effect Jan. 5, all passengers at least 2 years old on flights originating from these locations will be required to show a negative COVID-19 test no more than two days from their departure date. Other countries are considering similar restrictions.

These worries not only tamped down anticipation China would renew large purchases of commodities after its economy slowed dramatically in 2022 under strict lockdowns but prompted concern of a global wave of infections that could slow world economic growth. Market observers believe they'll have a better understanding of how the surge in COVID cases in China will play out following the Chinese New Year on Jan. 22, usually a busy time when Chinese travel to celebrate with family.

China's economy is still expected to grow robustly in 2023, with the Energy Information Administration projecting a 600,000-barrel-per-day (bpd) or 4% annual increase in oil demand to 15.76 million bpd next year.

ICE February Brent expired at $82.26 per barrel (bbl), and the March contract settled $0.53 lower at $83.46 per bbl. Brent is the global price benchmark for crude oil.

NYMEX February West Texas Intermediate futures ended down $0.56 at $78.40 per bbl, but at the upper end of its trade range on the session. The lower session followed EIA data showing a 700,000-bbl build in commercial crude inventory to 419 million bbl during the week ended Dec. 23. The build was realized amid a sharp drop-off in U.S. crude exports, which fell 895,000 bpd to 3.465 million bpd, yet the weekly export rate can be volatile.

The build in commercial crude stocks was also accompanied by a 3.5-million-bbl disbursement of crude oil from the Strategic Petroleum Reserve, with the release of crude from the SPR nearing an end. The Department of Energy notes 13.3 million bbl of SPR crude have been disbursed in December, nearly completing the 15 million bbl sold for the month. There's unlikely to be more SPR sales, with the DOE now looking to refill the SPR, putting out a bid for 3 million bbl in December.

NYMEX January RBOB futures reversed losses nursed through most of the session with a $2.3707-per-gallon settlement for a modest $0.0078 gain ahead of the contract's expiration Friday, while the February contract ended at a 60-point premium. RBOB futures found support on EIA data showing a sharp 613,000-bpd increase in gasoline supplied to the U.S. market during the week-ended Dec. 23 to 9.327 million bpd, the highest weekly consumption rate since the last week of September. The sharp gain in demand pressed gasoline inventory down 3.1 million bbl from a five-month high to 223 million bbl, with stocks flat on the year.

NYMEX January ULSD futures ended $0.0648 lower at $3.3130 gallon and the February contract eased $0.0366 to $3.2633 gallon, narrowing the backwardation ahead of the January contract's expiration Friday following Thursday's EIA report showing a 134,000-bpd decline in demand for distillate fuel to 3.88 million bpd in the runup to the Christmas weekend. Inventory of the middle of the barrel fuel edged up 300,000 bbl to 120.2 million bbl against expectations for a drawdown.

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