Oil gains after Saudi price hike indicates confidence in demand

Oil rose after Saudi Arabia boosted the prices of its crude, signaling confidence in the demand outlook despite the spread of the omicron variant of the coronavirus.

Futures in New York advanced 2.4 per cent to trade near $68 a barrel. The kingdom increased its oil prices for customers in Asia and the U.S. for January, just days after the OPEC+ alliance agreed to boost output for the same month. Prices for its high-sulfur barrels in Asia were the highest since at least 2000. 

Meanwhile, initial data on omicron from South Africa – the epicenter of the outbreak – doesn’t show a resulting surge of hospitalizations. Markets across the globe have been roiled since the variant emerged in recent weeks, prompting concerns about a potential hit to the economic rebound. 

The U.S. said over the weekend that chances of Iran rejoining the nuclear deal may be slipping away. The briefing was one of the most pessimistic American assessments of the negotiations yet, dampening any expectations of a quick return of Iranian oil to the market.   

While oil dropped for a sixth consecutive week of declines – the longest stretch since 2018 – it has begun to recover from the stark drop at the beginning of last week, when omicron led to renewed restrictions on travel. OPEC+ decided to keep adding extra barrels to the market in January, essentially putting a floor under prices by giving itself the option to change the plan at short notice.

Oil is seeing “a continuation of last week’s recovery” and “a bit of extra spice by Saudi OSPs,” said Ole Hansen, head of commodities strategy at Saxo Bank.

Prices

  • West Texas Intermediate for January delivery gained 2.4 per cent to $67.68 a barrel by 10:15 a.m. in London
  • Brent for February settlement rose 2.1 per cent to $71.37 a barrel

Saudi Aramco raised its key Arab Light grade for customers in Asia by 60 cents from December to $3.30 a barrel above a benchmark, according to a statement from the state producer. That followed comments last week from Aramco chief executive officer Amin Nasser that he was “very optimistic” about demand and that the market had overreacted to omicron.

© 2021 Bloomberg L.P.

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