Oil prices jumped 1% on the first day of trading of the new year

Recap: Oil futures ended higher on Monday, supported by tight supply, a strong U.S. dollar and hopes of a further demand recovery in 2022, despite OPEC+ looking set to agree to another output increase and persistent concerns about how rising COVID infections might affect demand. Oil prices jumped 1% on the first day of trading of the new year.  WTI topped $76 a barrel after bouncing between gains and losses, while Brent traded above $78 a barrel. Monday’s higher move adds to the strongest annual rise for crude in 12 years. WTI for February delivery rose 87 cents, or 1.2%, to settle at $76.08 a barrel. March Brent added $1.20, or 1.5%, at $78.98 a barrel. WTI, the U.S. benchmark, rose 55% in 2021, the strongest percentage gain based on front-month contracts since 2009. Brent advanced 50.2% -- its strongest percentage rise since 2016. Against that backdrop, petroleum product futures ended higher Monday, with February gasoline adding 1.4% to $2.257 a gallon and February heating oil up 1.4% at $2.357 a gallon.

Technical Analysis: So far, trader reaction to the upcoming OPEC+ meeting set for January 4 has proven positive for oil prices. Ahead of the January 4 meeting, a technical report seen by Reuters showed on Sunday that OPEC+ expects the impact on the oil market from the Omicron coronavirus variant to be mild and temporary, keeping the door open for a further increase in output. In the report’s base scenario, OECD commercial oil stocks in 2022 will remain below the 2015-2019 average in the first three quarters, and rising above that average by 24 million barrels in the fourth quarter. The scenario assumes 40 million barrels are released from strategic petroleum reserves in the first half of the year, and that 13.3 million barrels are returned to the U.S. strategic reserve in the third quarter. The report kept forecasts for the growth in oil demand in 2021 and 2022 unchanged at 5.7 million bpd and 4.2 million bpd respectively. As of now, it looks like oil prices are going to continue to the upside, with $80 in trader’s sights. Keep in mind that the jobs number in America comes out on Friday, and that of course will have a lot to do with where we go from a longer-term standpoint.

Fundamental News: OPEC+ is expected to stick to its plans for a February output increase when it meets on Tuesday, predicting a mild and short-lived impact on demand from the Omicron coronavirus variant. Current plans would see it raise its February production target by 400,000 bpd as it has done each month since mid-2021. In a technical report, the group downplayed the impact on the oil market from the Omicron variant. It said OPEC+ expects the impact on the oil market from the Omicron coronavirus variant to be mild and temporary, keeping the door open for a further increase in output. The report kept forecasts for the growth in oil demand in 2021 and 2022 unchanged at 5.7 million bpd and 4.2 million bpd respectively. OPEC cut its forecast of the market’s oversupply to 1.4 million bpd for the first quarter, less than half of the 3 million bpd surplus they estimated a month ago.  OPEC’s Secretary General, Mohammed Barkindo, in his opening remarks to the Joint Technical Committee meeting, said the group would “remain highly nimble and adaptable to the constantly changing situation.”  On Monday, OPEC voted to appoint Kuwaiti candidate Haitham al-Ghais as its new secretary general.  OPEC’s Secretary General elect said a top priority for him is to keep the group’s pact with Russia and other producers in place. He said he sees global oil demand returning to its pre-pandemic level by the end of 2022.

Vortexa reported that the amount of crude oil held around the world on tankers that have been stationary for at least 7 days increased to 97.32 million barrels of as December 31st. It is up 8.6% from 89.6 million barrels in the week ending December 24th.

IIR Energy reported that U.S. oil refiners are expected to shut in 148,000 bpd of capacity in the week ending January 7th, increasing available refining capacity by 154,000 bpd.  Offline capacity is expected to fall to 56,000 bpd in the week ending January 14th.

Early Market Call - as of 8:45 AM EDT

WTI - Feb $76.84, up 76 cents

RBOB - Feb $2.2827, up 2.62 cents