MOSCOW (MRC) -- Oil prices hit two-month highs on Wednesday on tight supply and easing concerns about the potential hit to demand from the Omicron coronavirus variant, reported Reuters.
US Federal Reserve Chairman Jerome Powell on Tuesday said that the economy of the United States, the world's biggest oil consumer, should weather the current COVID-19 surge with only "short-lived" impact and is ready for the start of tighter monetary policy.
Brent crude futures were up 47 cents, or 0.6%, at USD84.19 a barrel by 1430 GMT. US West Texas Intermediate (WTI) crude futures were up 66 cents, or 0.8%, at USD81.88.
Equities, which often move in tandem with oil prices, also ticked up, while a weaker dollar also lent support. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies,
The Brent contract is showing growing backwardation, with front-month delivery around USD4.20 more expensive than delivery in six months, indicating tight near-term supply.
OPEC+ oil producers continue to hold back more than 3 million barrels per day (bpd) in output while Iranian exports are pinned back by continuing US sanctions. Though OPEC+ producers are raising output targets each month, technical difficulties have prevented several countries from hitting their quotas.
"Assuming China doesn’t suffer a sharp slowdown, that Omicron actually becomes Omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards USD100 in Q1, possibly sooner," said Oanda analyst Jeffrey Halley.
"There are plenty of variable outcomes in the previous sentence, the biggest threat being Omicron in China, India and Indonesia."
Meanwhile, European jet fuel refining margins are back to pre-pandemic levels as supplies in the region tighten and global aviation activity recovers.
US crude stocks fell by 1.1 million barrels in the week ended Jan. 7, market sources said, citing figures from the American Petroleum Institute (API).
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 was 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.