Oil rises on hawkish Fed and as U.S. demand withstands omicron

Oil rose after U.S. crude stockpiles fell the most since September and a more hawkish Federal Reserve spurred a broader rally in financial markets on speculation it can slow inflation without derailing growth.

Futures in New York climbed as much as 1.5 per cent after recovering from omicron concern in the previous session to close slightly higher. The S&P 500 settled near an all-time high Wednesday after Fed officials intensified their battle against the hottest inflation in a generation by moving to end their asset-buying program earlier than anticipated.

Conflicting signals on demand and supply have seen oil swing between gains and losses this week. While the outlook for consumption appears to be deteriorating as China, the biggest oil importer, limits holiday travel to try and contain omicron, the picture looks more positive in the U.S. The International Energy Agency said this week that the market was already in surplus, but Vitol Group, the world’s largest independent oil trader, said it expects prices to rise next year due to a lack of new investment in production.

U.S. crude stockpiles declined by 4.58 million barrels last week, the Energy Information Administration reported Wednesday, in a positive sign for consumption in the world’s largest economy. Exports climbed back above 3 million barrels a day with traders pushing barrels out of the country to avoid the impact of year-end taxes on inventories.

“On the one hand we had extremely positive data from the EIA report yesterday, strong implied oil demand, and large inventory draws across crude and oil product,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. “And the other element was the Fed, which has supported all risk assets on Thursday.”

Prices

  • West Texas Intermediate for January delivery rose 1.3 per cent to $71.76 a barrel on the New York Mercantile Exchange at 11:06 a.m. London time.
  • The more-active February contract advanced 93 cents to $71.59 a barrel.
  • Brent for February settlement gained 1.2 per cent to $74.76 a barrel on the ICE Futures Europe exchange.

Surging U.S. gasoline demand before the holiday season suggested concerns about the new virus variant weren’t keeping drivers off the roads. Global onshore crude inventories are also dropping, led by draws in Europe, according to data from consultant Kayrros.

Meanwhile, the physical crude market in Asia softened as a crackdown on China’s private processors and weaker refining margins crimped demand. The spot premium of Russia’s ESPO to the Dubai benchmark slipped to the least since August, while Sokol and Al-Shaheen’s also dropped over the past month.

© 2021 Bloomberg L.P.

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