Oil rose to nearly $84 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.
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. [OPEC/O]
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 $2.85, or 3.52%, to $83.72 a barrel, its highest price since early November, after having lost 1% in the previous session.
U.S. West Texas Intermediate (WTI) rose $2.99, or 3.8%, to $81.22, 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 U.S. government on Tuesday also estimated that U.S. 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 U.S. 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 U.S. inventories are expected to show crude stockpiles fell by about 2 million barrels. [API/S]
The first of this week’s supply reports, from the American Petroleum Institute (API), was due at 4:30 p.m. EST (2130 GMT) on Tuesday.
(Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in SingaporeEditing by David Goodman, David Gregorio, Mark Heinrich and Paul Simao)
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