Omicron slump aside, oil prices soar to 2-month highs

Due to tight supply and decreasing concerns about potential demand from the Omicron coronavirus variant, oil prices reached two-month highs Wednesday.

Jerome Powell, Chairman of the Federal Reserve, stated Tuesday that the US, the largest oil consumer in the world, should weather the COVID-19 surge without any significant impacts and be prepared for tighter monetary policies.

Brent crude futures rose 0.4% to $84.06 per barrel at 09:18 GMT, or 34 cents.

U.S. West Texas Intermediate crude futures rose 0.6% to $81.71 per barrel or 49 cents. Both contracts will see their sixth session of gains, out of eight.

Brent contracts are showing increasing backwardation, with front-month delivery $4.20 more than delivery in six months’ time. This indicates a tight supply.

OPEC+ producers are still limiting their output by more than 3,000,000 barrels per day, and Iran is repressing its exports.

Despite OPEC+ producers increasing their output targets every month, technical problems have prevented many countries from reaching their quotas.

Jeffrey Halley, the Oanda analyst, stated that if China does not suffer a slowdown, then Omicron becomes omi-gone. With OPEC+’s limited ability to increase production, there is no reason why Brent crude could not move towards $100.00 in Q1, if not sooner.

“There are many variables in the sentence before, the greatest threat being Omicron, China, India, or Indonesia.”

As supplies decrease in Europe and global aviation activity recovers, European jet fuel refining margins have returned to pre-pandemic levels.

According to market sources, which cite figures from the American Petroleum Institute (API), crude oil stocks in the United States fell by 1.1 million barrels during the week ending Jan. 7.

On Wednesday, the government figures will be released.

The U.S. Energy Information Administration updated its outlook on oil demand Tuesday. It sees U.S. demand increasing by 840,000 barrels per day in 2022, an increase from the previous forecast of 700,000.

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