MOSCOW (MRC) -- Oil rose to nearly USD84 a barrel on Tuesday, supported by tight supply and expectations that rising coronavirus cases and the spread of the Omicron variant will not derail a global demand recovery, reported Reuters.
A lack of capacity in some countries has meant that supply additions by the Organization of the Petroleum Exporting Countries (OPEC) are running below the increase permitted under a pact with its allies.
On the demand side, Federal Reserve Chair Jerome Powell said on Tuesday he expects the economic impact of Omicron to be short-lived, adding that ensuing quarters could be very positive for the economy after the surge driven by the variant subsides.
Brent crude gained USD2.85, or 3.52%, to USD83.72 a barrel, its highest price since early November, after having lost 1% in the previous session.
US West Texas Intermediate (WTI) rose USD2.99, or 3.8%, to USD81.22, also its highest price since mid-November. On Monday, it fell 0.8%.
"Combination of facts - that demand is going to be stronger than anticipated and that OPEC's supply may not grow as fast as the demand - is why prices are climbing," said Phil Flynn, senior analyst at Price Futures Group.
Major economies have avoided a return to severe lockdowns, even as COVID-19 infections have soared. European jet fuel refining margins, for example, are back to pre-pandemic levels as supplies in the region tighten and global aviation activity recovers despite the spread of Omicron.
"Omicron has yet to wreak the havoc of the Delta variant and may never do so, keeping the global recovery on track," said Jeffrey Halley, analyst at brokerage OANDA.
The US government on Tuesday also estimated that US oil output would be lower this year than previously expected, while total oil demand would be higher than earlier forecast.
Production is estimated to rise by 640,000 barrels per day this year, lower than the previous month's forecast of a 670,000 bpd rise, and expected to increase by another 610,000 bpd in 2023.
Total oil demand is now expected to rise by 840,000 bpd for the year, higher than the 700,000-bpd increase expected last month. It is estimated to rise by another 330,000 bpd in 2023.
Brent rose by 50% in 2021 and has rallied further in 2022, with investors expecting increasing demand while OPEC and its allies, collectively known as OPEC+, slowly ease record output cuts made in 2020.
Recent outages in Libya have also buoyed prices, and the National Oil Corp said on Tuesday it was suspending exports from the Es Sider terminal. A weaker US dollar also helped to support oil because it makes oil cheaper for buyers holding other currencies and tends to reflect higher risk appetite among investors.
Upcoming reports on US inventories are expected to show crude stockpiles fell by about 2 million barrels.
As MRC informed before, US commercial crude stocks fell 3.48 million barrels to 413.96 million barrels in the week ended Sept. 17, to more than 8% below the five-year average, Energy Information Administration data showed. Stocks were last lower Oct. 5, 2018.
We remind that in late August, 2021, US crude stocks dropped sharply while petroleum products supplied by refiners hit an all-time record despite the rise in coronavirus cases nationwide, the Energy Information Administration said. Crude inventories fell by 7.2 million barrels in the week to Aug. 27 to 425.4 million barrels, compared with analysts' expectations in a Reuters poll for a 3.1 million-barrel drop. Product supplied by refineries, a measure of demand, rose to 22.8 million barrels per day in the most recent week. That's a one-week record, and signals strength in consumption for diesel, gasoline and other fuels by consumers and exporters.
We also remind that US crude oil production is expected to fall by 160,000 barrels per day (bpd) in 2021 to 11.12 million bpd, EIA said in a monthly report earlier last year, a smaller decline than its previous forecast for a drop of 210,000 bpd.
MRC